House prices have tumbled for a third month in a row, with the average home now worth £5,000 less since August after the property market’s worst run of losses for more than a decade. The figures increased pressure on the Bank of England to cut interest rates today.

Confirmation from Halifax, the biggest mortgage lender, that the housing downturn is rapidly gathering pace, and more warning signs that the economy faces a painful slowdown, sent the City scrambling to bet on the Bank cutting rates today.

Pressure on the Bank has escalated in recent days as mounting nervousness among big financial institutions has threatened a fresh seizure in the City’s money markets. London’s big banking groups have been hoarding cash, driving up commercial loan costs and inflicting fresh damage to an already faltering economy.

City hopes that the Bank’s rate-setting Monetary Policy Committee (MPC) will act this morning to ease these stresses with lower borrowing costs leapt yesterday after a “double whammy” of bleak news over next year’s prospects.

The Halifax figures showing that average house prices in November fell by 1.1% - the sharpest monthly slump in for almost a year – coincided with evidence that conditions in the services sector - the engine room of the economy - have weakened to their worst in four-and-a-half years as fearful consumers curb their spending habits.

On the stock market, bluechip shares charged upwards as expectations mounted of a quarter-point cut in base rates from their present six-year high of 5.75 per cent.

Any cut will be greeted with relief by homeowners. Last month’s fall in property prices came on the heels of a 0.7 per cent drop in October and a 0.6 per cent decline in September. It marked the first time since 1995 that prices have fallen for three consecutive months.

House price inflation has collapsed from the double-digit pace that homeowners have grown used to, to just 6.3 per cent last month, amid economists’ predictions that it will slide close to zero, if not into negative territory, with year-on-year falls in property values, in coming months.

Fears over a severe economic downturn next year were stoked by more grim developments in the services sector, which has driven Britain’s economic growth for the past decade.

Two key surveys suggested that the robust growth enjoyed by services businesses from cinemas and restaurant groups to accounting and legal firms is now in serious danger of stalling.

Overall activity for services companies fell for a third month in a row last month to its weakest since May 2003, a closely-watched survey indicated. It suggested that conditions were worst for hotels and restaurants, and for financial groups, with both sectors shrinking during November.

The latest indication of households cutting their spending came just a day after a poll from the Nationwide Building Society showed their confidence falling at its sharpest rate in more than three years.

Pressure on the pound in Britons’ pockets was highlighted again as the British Retail Consortium said that food prices leapt last month, rising at their sharpest rate this year.

With the Bank of England wrestling today with its nagging worries over persistent inflationary pressures, however, the BRC’s evidence of continuing price pressures at the shops will do little to ease its dilemma over interest rates, economists said.