British mortgage approvals fell in December to the lowest since at least 1999, Bank of England data shows today, the strongest sign yet that house prices could fall sharply this year.
The weaker than expected figures will pile further pressure on the Bank of England to cut interest rates next week from the current 5.5% and follow that up with concerted easing throughout the year.
A sharply slowing housing market also comes at a bad time for a Labour government which has staked its reputation on the economy and is still trying to fix the Northern Rock crisis to win back voters' confidence ahead of an election due by 2010.
A separate survey also showed inflation expectations spiking to record levels this month, adding to the economic headache facing politicians and monetary policymakers alike.
The BoE figures today showed mortgage approvals for house purchases fell for a seventh consecutive month to 73,000 in December from a downwardly revised 81,000 in November, well below analysts' expectations for a reading of 79,000.
Many economists are now revising down their house price forecasts for this year, predicting around a 5% fall.
Consumer credit also weakened markedly, the BoE figures showed, rising by £557m sterling in December, the smallest increase since April 2007 and half the amount forecast.
The Bank of England is widely expected to cut interest rates at its February meeting, with markets pricing in about another three cuts before the end of the year.
However, some policymakers, including Governor Mervyn King, have been vocal in warning that inflation risks are rising and that the central bank will not abandon its remit to keep inflation close to the government's 2% target.
