Nationwide, the UK's biggest building society, today gave warning that a recession could be on the way after the average house price in the year to July plunged to a three-year low of £169,316.

The average price of a home is now £15,000 lower than in July last year, after prices declined by 8.1 per cent - the fastest decline since 1991 during Britain's last recession.

Nationwide said that over the course of this year, house prices have fallen nine months in a row, and in July declined by 1.7 per cent, more than double June’s 0.8 per cent fall.

Yesterday, it emerged that 1.7 million homeowners in the UK face falling into negative equity if house prices plunge by an expected 17 per cent.

Standard & Poor's (S&P), the credit rating agency, said that 70,000 homeowners already have mortgage debt higher than the value of their homes.

However, S&P expects the price of an average house to fall by a further 17 per cent into next year, plunging one in six homeowners into negative equity.

The Nationwide survey caps another bad week for the British economy. Yesterday, Centrica, owner of British Gas, piled pressure on household budgets by raising gas prices by 35 per cent and electricity by 9 per cent.

The sudden rise means that more British families face fuel property, where 10 per cent of a household budget is spent on energy bills.

Also, a key GfK NOP revealed that consumer confidence in the UK is running at its lowest level since it started compiling records in 1974, largely as a result of the drop in house prices.

Earlier this week, the Bank of England reported the number of mortgage approvals, regarded as a gauge of future demand, fell by nearly 70 per cent on last year to just 36,000 in June, a record low for the series, which began in April 1993.

Fionnuala Earley, chief economist at Nationwide, said the risk of an economic recession in the UK is now “clearly rising” and that the recent fall in the oil price from record levels of $147 to around $126 could provide scope for an interest rate cut.

She said: "If oil prices continue to fall and the MPC is satisfied that its inflation credentials are intact, the possibility of earlier rapid cuts in interest rates increases, which would be good news for borrower.”

Howard Archer, chief UK and European economist at Global Insight, said: "The Nationwide data indicate that there is ongoing major downward pressure on house prices from extremely weak market activity, stretched buyer affordability and tight lending conditions.

"It seems odds-on that house prices will continue to head rapidly south, given that the Bank of England reported extremely low mortgage approvals for house purchases in June, while latest survey evidence shows that house sales are depressed, buyer interest is weak, it is taking longer to sell a house, and sellers are achieving a falling percentage of their asking price."

County-by-county: completion prices as a percentage of asking prices