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This was reflected in a significant reduction in mortgage approvals in April, to 58,000 - a near 20 per cent reduction versus the first quarter of 2008 average.

In value terms, mortgage approvals fell to £24bn, representing a 10 per cent reduction on the first quarter average. The data partly reflects the decline in numbers in the first-time buyer market. Since first-time buyers normally represent a very significant percentage of total sales, there has been further pressure on house prices.

Both the Halifax and Nationwide indices showed a 2 per cent plus decline in average house prices in April, reducing the annual rate of house price inflation to the region of minus 4 per cent a year. The international liquidity crunch is likely to exert further downward pressure on lending volumes and therefore on average house prices. I expect the value of mortgage approvals to reach a low point in the region of £21bn, seasonally adjusted, in late summer before recovering in the fourth quarter of the year, as credit conditions slowly ease.

I predict the annual rate of house price inflation will reach a low point in the region of minus 10 per cent a year in August. Thereafter, I anticipate as last year's very substantial price increases drop out of the annual rate of house price inflation will gradually recover to zero in the winter of 2008 to 2009. As expected, the Monetary Policy Committee left the base rate on hold this month. Consumer price inflation is expected to move above the government's 1 per cent to 3 per cent range when June data is published next month.

This leaves the MPC with little room for manoeuvre in respect of base rate reductions. Following a further surge in the crude oil price and a sharp rise in both UK input and output inflation, the MPC may well keep the base rate on hold for the remainder of the year. I estimate there is a now only a 50 per cent chance the base rate will be reduced this year.

The European Central Bank has indicated it may well increase their benchmark interest rate in response to global inflationary pressures. If commodity prices continue their upward spiral, the next move in the base rate will be a 0.25 per cent increase despite the slowdown in the UK economy. If this were to occur, the impact on consumer spending would be significant eventually leading to a downturn in inflation and a falling base rate environment in 2009.

Laurence Sanders is UK financial services economist for Bristol & West