The credit quality of Western European corporate borrowers has deteriorated to a level not seen since 2003, and could worsen as European economies grapple with rising inflation and slowing growth, exacerbated by the credit crunch.

Western European credit quality remains in better shape than in the previous downturn at the start of this decade, according to Moody’s, the credit rating agency, although the rate of decline has accelerated since the first quarter of 2008, in a report published on Monday.