Further confirmation that the economy is entering its worst slowdown since the early 1990s came yesterday, as the Halifax index showed that house prices fell by another 1.3 per cent in April.


It follows a 2.5 per cent drop in March, and came as the Insolvency Service reported a 58 per cent jump in the number of companies going into administration in the first quarter of this year.

The Halifax data will be of most immediate concern to householders. Property values are down 0.9 per cent on the year, the worst performance since 1996, with only Scotland bucking the trend.

The figures are in line with those from Nationwide, and demonstrate how badly the credit crunch is hitting the British economy as banks and building societies choke off lending to homebuyers and businesses.

March witnessed a rush of banks withdrawing products as interbank lending rates (Libor) soared and the Bank of England reported worsening credit conditions for companies.

Personal insolvencies rose to 25,264 in the first quarter of this year, up 1.7 per cent on the last quarter, and at 3,210, corporate liquidations rose by 4 per cent on the year. The tally of 858 firms placed in administration was one of the highest in two decades.

Analysts also predicted that the situation would not improve quickly: Liz Bingham, head of corporate restructuring at Ernst & Young, said: "Insolvency may be the only option available for increasing numbers of individuals. Credit will be expensive and in short supply just as debts hit record highs – over 160 per cent of post-tax income, versus around 100 per cent in 2001.

"Meanwhile, price falls are reducing options for home equity withdrawal and inflation is eating into disposable income."

Malcolm Barr, UK economist at JP Morgan, added: "House price declines are running at just over a 7 per cent quarter-to-quarter annualised rate. There is no evidence that the decline in prices is tempting potential buyers back into the market, and the fall in house prices is gaining momentum."

Concern is increasingly focusing on the scale of the slump. The economist David Blanchflower, a member of the Bank of England's Monetary Policy Committee, suggested on Thursday that "a correction of one third in house prices does not seem implausible in the UK over a period of two or three years if house price to-earnings ratios are to be restored to more sustainable levels."

Leading indicators also suggest a hefty drop. Martin Ellis, chief economist at Halifax, said: "The number of new buyers interested in home purchase fell for the 16th successive month, highlighting the decline in housing demand." This month the Royal Institute for Chartered Surveyors put expectations for house prices at their lowest since 1978, while mortgage approvals are running at half last year's rate.

Repossession orders – which usually herald more actual repossessions and evictions – totalled over 100,000 in 2007, the highest since 1990. An increase in lending by the banks may come with the Bank of England's £50bn Special Liquidity Scheme, but few expect rapid relief. Problems in the housing market are having a knock-on effect on the construction industry. According to the Chartered Institute for Purchasing and Supply, confidence dropped to its weakest levels in 1998 as levels of housing and commercial construction activity "fell markedly".

Evidence of continued weakness in the economy will increase the chances of a cut in interest rates when the Bank of England makes its next announcement on Thursday, although most observers expect no change.



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