Fenton Burgin, Debt Advisory Partner at Deloitte, said: "In an otherwise bleak survey there is evidence that some UK corporates are taking advantage of falling equity values and banks lending less money to private equity to contemplate M& A activity. Corporates' share of the reduced merger volumes has risen in the first quarter of 2008 and today's data suggests that mid market firms are willing to borrow to take advantage of lower valuations."

Burgin, added: "In the medium term, lower equity valuations driven by reduced bank liquidity will benefit the private equity industry and as market stability returns we envisage that 2008 and early 2009 will produce some vintage deals for UK private equity. In the short term, the Bank of England data highlights that market conditions remain uncertain and challenging."