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The study of the consumer lending market forecasts that new lending in the mortgage and consumer credit sectors will fall by 19.3 per cent and 3.2 per cent respectively to a total of £492.5bn by the end of 2008. This compares to £569.3bn last year.

This prompted Datamonitor to warn that the "future looks bleak", with lending markets beset by the ongoing credit crunch, falling house prices, rising arrears and repossessions and indebted consumers struggling to find credit.

Karina Purang, financial services senior analyst at Datamonitor, said: "In current uncertain market conditions, it's neither good to be a lender nor a borrower."

The Council of Mortgage Lenders (CML) reported that gross mortgage lending amounted to just £149.5bn for the first six months of the year, down 18.9 per cent on the £177.8bn for the same period last year.

It also reported today that gross mortgage lending was down 27 per cent in July (totalling just £24.8bn), compared to the corresponding period in 2007.

Datamonitor predicts that mortgage sector will fall to just £293.6bn in gross lending in 2008, down 19.3 per cent on last year. It also predicts a further reduction of 3 per cent in 2009.

However, the consumer credit market is expected to fare better. It is forecast to reduce by 3.2 per cent to £199bn in 2008 and pick up by 1.4 per cent in 2009 to account for £201.8bn.

Overall, total new consumer lending is predicted to contract by 13.5 per cent this year, amounting to £492.5bn, compared to the £569.3bn in 2007.