UK prices remained unchanged in January, with growth recorded at zero per cent, while prices fell one per cent over the last three months.

The Halifax House Price Index provides further evidence of a slowdown in the property market and places pressure on the Bank of England to cut interest rates when the monetary policy committee meets later this week.

According to Halifax, the average home is now worth £197,244 – £7,628 more than a year ago, with annual growth falling to 4.5 per cent.

However, growth over the last three months fell by one per cent compared with the previous quarter.

Despite this three-month fall, Halifax is still confident that falling interest rates and a strong – but slowing – economy will provide firm enough support to stop a house price crash.

However, Capital Economics is far from buoyed by the Halifax figures and expects further house price falls over 2008 as affordability pressures remain strong in a slowing economy and mortgage lenders tighten lending criteria despite forecast interest rate cuts.

“The drop in new mortgage demand to date already points to the annual rate of house price inflation soon turning negative,” said Ed Stansfield, property economist at Capital Economics.

“Moreover the drop in prices that we saw in the closing stages of last year, of just over one per cent, will have done little to help those priced out of the market by the long house price boom.

“And with mortgage lenders reining in lending and failing to pass on the full cuts in base rates to borrowers, activity levels in the market are likely to remain subdued.”

Mr Stansfield concluded: “Finally, the economy looks set to slow sharply, leading to job cuts this year and next.

“These will lead to a rise in forced sales which, in turn, will act as another downward force on current high house price levels.”