Demand for loans is falling in the eurozone as households and businesses grapple with higher borrowing costs and a weak economic outlook, a European Central Bank survey showed Tuesday.

The drop in demand for mortgages in the fourth quarter of 2022 was "the strongest recorded" since the quarterly bank lending survey began in 2003, the ECB said in a report.

"Rising interest rates, low consumer confidence and deteriorating housing market prospects" all contributed to the sharp decline, the report said.

Other lending to households was also down, as was demand from companies for loans or credit lines in the 20-nation currency club.

Banks expect the trend to continue in the first quarter of 2023, the survey of 151 banks showed.

At the same time, eurozone lenders reported "a substantial tightening" in credit standards in the final quarter of 2022, as banks showed less appetite for risk against an uncertain economic outlook.

For companies, the tightening was "the largest reported" since the eurozone debt crisis in 2011.

The survey indicated "weaker borrowing ahead", said ING economist Carsten Brzeski.

"This confirms our view of a sluggish economy for most of 2023 and is a clear sign to the ECB that rate hikes are having a substantial impact already."

The ECB has in recent months hiked its key interest rates at an unprecedented pace to curb inflation, after Russia's war in Ukraine sent food and energy prices soaring.

Eurozone inflation hit a record high of more than 10 percent in October, before easing to 9.2 percent in December -- suggesting that the ECB's monetary policy tightening is working.

The ECB is expected to announce another 50-basis-point rate hike on Thursday, further increasing borrowing costs for prospective lenders.