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Looking back at the last 12 months, house prices in April were 0.9 per cent less than a year ago, with the price of a home in the UK now averaging £189,027.

Regional data continues to paint a mixed picture, with some areas of the country still performing well.

Scotland has seen modest price rises, while areas such as Wales and the west Midlands face above average falls.

However, the price falls in these regions should be viewed within the context of the substantial price rises recorded in the last 10 years: 150 per cent in the west Midlands and 188 per cent in Wales.

This is also true nationally where the average UK price rose by 190 per cent - or more than £130,000 - between August 1997 and August 2007.

Further evidence of the market slowing down is clear from the transactions data. The Royal Institution of Chartered Surveyors reported a drop in completed property sales in March of 20 per cent on an annual basis.

Demand is also weaker; 68 per cent more chartered surveyors reported a fall rather than a rise in new buyer enquiries, up from 51 per cent in January.

The number of mortgages approved to finance house purchase – a good leading indicator of house sales – in the first quarter of 2008 was 41 per cent less than a year earlier.

We expect the housing market to remain tough during the remainder of 2008. Overall, we predict a mid single digit percentage decline in UK house prices this year.

A number of favourable factors, however, should continue to support prices. Employment, a key indicator in predicting housing market performance, remains high. Despite a squeeze on spending power which is curbing demand, household finances remain relatively strong. This means the majority of mortgage holders are not under pressure to sell, therefore preventing a sudden flooding of the market and keeping housing supply in check.

Housing supply will be further constricted by below-target housebuilding. The Department for Communities and Local Government reported a fall in the number of new homes being built in the first three months of the year, down 21.5 per cent from the final quarter of 2007 and 24.4 per cent down on last year.

The Monetary Policy Committee chose not to cut the Bank of England base rate this month amid concerns over upward pressures on inflation. The Office of National Statistics reported consumer price index annual inflation – the government's target measure – was up from 2.5 per cent in March to 3 per cent in April.

While it is clear the MPC is unlikely to reduce rates rapidly and sharply, we think there is still scope to lower rates further this year as the economy continues to slow. Lower interest rates will help to support the economy and the housing market.

Martin Ellis is group economist of HBoS