Foreign-owned bank branches in Britain made the country’s financial crisis worse, shrinking their loan books by almost half at the height of the credit crunch, according to Bank of England research.

In the latest sign of the BoE’s concern surrounding the impact of international banking on the UK economy, research by the central bank showed lending from foreign-owned branches boomed in the run-up to the crisis before collapsing by 45 per cent between the third quarter of 2007 and the same period in 2009.

The study, released late on Friday, highlights the difficulties in kickstarting credit creation following the slump in lending triggered by the crisis. The Funding for Lending scheme and Project Merlin, the government’s flagship initiatives to spur lending to Britain’s households and businesses, have so far failed to reverse the decline. But involvement in both schemes is confined to UK-owned banks.