Businesses have raised over 70 billion pounds of net additional financing from banks since March, most of that through government-backed loan guarantee schemes.

"Once those schemes stop we will really test banks' lending appetite," Alex Brazier, the BoE's executive director for financial stability, told a BoE online event.

"Hopefully by the time those schemes begin to roll off, we will see credit demand begin to ease," he said, adding that the focus would then switch to companies raising new equity on markets to grow and to reduce debt.

Provisions for losses on loans across Britain's five main banks have already reached $22 billion.

"Markets are expecting them to take about 50 billion pounds of losses, and they can comfortably absorb those in their buffers of capital that they hold, so they don't need to cut back on lending," Brazier said.

Parts of the financial market became dysfunctional in March when the pandemic lockdown began, Brazier said.

Money market funds across the world saw big outflows during a "dash for cash" that could have become worse had central banks not stepped in to buy bonds to ease the strain, he said.

"We haven't forgotten that and we are working with other central banks and with market regulators around the world, because it was a global issue, to fully understand what happened and to try and put reforms together to try and stop it from happening again."

By Huw Jones