The influential Treasury Select Committee’s report released this morning found that the government’s recapitalisation plan for UK banks may even be damaging the return to normal credit conditions.

The report said that the lack of bank lending was the “single most critical problem for the economy in the near term” but expressed concerns that the stringent terms required by banks that had accepted state aid to repair balance sheets might be “hampering” the banks ability to lend.

Committee chairman John McFall said: "The government must ensure the availability of credit increases quickly, and there is still far more work to be done. Without that increase in availability, the recovery of the economy will be placed in jeopardy.

“Given the importance of easing credit flows, the Report recommends that the Lending Panel, or a suitable agency of the Treasury, provide regular updates on the actual lending by the banks to the real economy.”

The report also found that the Treasury’s forecast for a swift economic growth recovery in 2010 is “above the average” warning that the government may have “given insufficient weight to the risks of continued financial market turbulence”.