Interest rate cut likelier as housing market slows

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Mortgage lender Halifax said house prices were flat between December and January - and predicted no growth at all in 2008. "There are continuing signs of weakness in the housing market activity," it said.

The average house price is now £197,244 - just 4.5% higher than this time last year.

There were similar gloomy reports by rival mortgage lender Nationwide and the Bank of England last week.

There were also worrying signs from the key services sector where confidence crashed to its weakest since October 2001. Financial firms and hotels, pubs and restaurants were particularly gloomy.

It raised fresh fears about the state of the economy and added to the case for a rate cut by the Bank on Thursday from 5.5% to 5.25%.

Roy Ayliffe of CIPS said: "The year has not shown a promising start for the services sector, fuelling further speculation that the UK may be heading into a recession."

However, firms increased prices at the fastest rate for 10 months as costs were pushed up by utility bills and wages, adding to the dilemma facing the Bank. Its concerns about rising inflation mean it is highly unlikely to follow the lead of the US Federal Reserve and cut rates by more than a quarter-point on Thursday.