The number of mortgages approved last month for new home buyers fell to its lowest level since May 1995, prompting suggestions that the Bank of England will cut interest rates next month.

Weaker-than-expected figures from the Bank of England show that banks and building societies approved 73,000 loans for house purchases in December, down from 81,000 in November and 114,000 in June.

Economists had predicted new home loans granted during December would to fall to 79,000.

Growth in consumer credit including personal loans and credit cards was also weaker than forecast, increasing by only £600 million, a 0.2 per cent rise from November and 5.7 per cent more than December 2006.

Approvals for remortgages rose slightly from November to 97,000, up from 96,000, as increasing numbers of people came to the end of fixed-rate mortgage deals they secured two or three years ago, when interest rates were at an historic low.

Total net lending to individuals grew by £9.1 billion in December, below November's increase of £9.2 billion and lower than the previous six-month average of £10 billion.

The Bank's figures were released as it was announced that Mervyn King had been reappointed Governor of the Bank of England for another five-year term when his present term comes to an end in June.

Howard Archer, chief UK & European economist at Global Insight, said: "The December Bank of England mortgage approvals data provide striking evidence that housing market activity is now being substantially undermined by both stretched affordability and tightening lending practices.

"This adds to the already intense pressure on the Bank of England to cut interest rates next week, and to enact further reductions thereafter."

Ian Kernohan, economist for Royal London Asset Management, said: "The latest mortgage approval numbers indicate that the current housing slowdown is more pronounced than in 2005 and bodes ill for the next set of retail sales data.

"The fallout from the US housing crisis is spreading to the UK via a general squeeze on credit availability, and the MPC [Monetary Policy Committe] will seek to offset some of this effect by cutting rates again next month."