London will stave off the worst of the house-price slump, and is still enjoying strong sales on the High Street, two major studies showed today. House prices in the capital, which have dropped about 2% since the peak, have a further 8% to fall, according to the influential Ernst & Young ITEM Club of top economists. The fall is nowhere near as bad as the pain expected in the rest of the country.

ITEM chief economist Peter Spencer said the London property market had not surged as spectacularly as other parts of the country in the run-up to the property slump. That meant it would now have less far to fall than areas such as Northern Ireland, where prices are already about 19% below last year.

"London prices are down by about 2% so far and we expect that, from the peak, they will come down by about 10% in total. That should take about 12 to 18 months," he said.

In the UK as a whole, the peak-totrough fall in the current housing cycle would be far greater, at about 15%, according to ITEM.

Green-belt building restrictions meant prices in the capital would always be supported by the limited amount of properties available, Spencer added.

Contrary to some expectations, the ITEM Club did not say the City environment had worsened in the current phase of the credit crunch.

"We've had the headline-grabbing staff cuts at banks in areas like arbitrage and credit but away from that, City employment is surprisingly resilient. Back-office staff in particular are in short supply," Spencer said. "Meanwhile, London firms are still out at universities on the milk round in large numbers."

British Retail Consortium figures today showed retail sales in central London have surged ahead as the gap with the rest of the country widens. Sales in the capital rose 8.7% compared with last year, whereas for the country as a whole they fell by 0.4%.

The BRC said a strong euro has been bringing in European shoppers, while cash-strapped domestic consumers can't afford the petrol to drive to out-of-town shopping centres.

They have been drawn to the West End by better public transport links and the hunt for bargains.

The sales growth was slightly weaker than the 11% in June 2007 as sharp falls in the dollar keep US visitors at bay. Retail footfall was only slightly weaker than in May, and remained above its year-earlier level, helped by clearance sales.

By contrast, footfall in the country as a whole fell 1.3% below its year-earlier level. The discount sales boosted clothing and footwear and food sales held up well.

Big-ticket items such as furniture were hit hard by the weakness in the housing market and a squeeze on household budgets.

"This is a strong result for London," Stephen Robertson, director general of the British Retail Consortium, said. "The mood among central London customers is clearly different from the rest of the UK.

"Londoners' higher average incomes, spending by overseas visitors and the rising costs of driving to shopping centres further afield have pushed up shopper numbers and spending."