Fresh confirmation from Britain’s biggest mortgage lender that the house price boom is over failed to persuade the Bank of England to cut interest rates yesterday.

Halifax, the nation’s biggest mortgage lender, said that its latest survey showed house prices tumbled by 0.5 per cent last month. It followed a 0.6 per cent drop the previous month, the first time the lender has reported back-to-back falls for nearly 2½ years.

But the Bank of England’s Monetary Policy Committee, whose members have made clear their reluctance to be pushed into cutting rates against the backdrop of surging oil prices and strong growth, kept rates on hold at 5.75 per cent.

Yesterday’s Halifax report showed the annual rate of house price inflation dropping back into single figures, to 8.9 per cent from 10.7 per cent the previous month. Halifax said that headline annual figure was set to decline further as the strength of the market last year drops out of the equation.

If recent trends continue, prices would fall in real terms over the coming year, the data suggested. The quarter-on-quarter rate of growth was just 0.3 per cent, or 1.2 per cent in annualised terms, well below inflation.

Interest from new buyers in purchasing a house fell at its fastest pace for more than three years in September, according to the Royal Institution of Chartered Surveyors, while mortgage approvals, the key indicator of market activity, fell by 6 per cent.

Brigid O’Leary, of Capital Economics, said: “The data support our view that a sustained period of falling house prices is now in the offing.”

However, the MPC’s decision to peg rates for now was in line with City expectations. The pressure to cut them has mounted over the past month, amid increasing signs that the impact of five rate rises since August 2006 and the global credit crunch is set to see the economy slow by more than the Bank intended.

But the recent surge in oil prices, with US light crude climbing this week above $98 a barrel for the first time, highlights the nagging risk of a renewed burst of inflation.

Steep increases in the costs of other commodities, especially food, are stoking price pressures and the Bank is also likely to see a decline in the overall value of the pound over past weeks as reinforcing inflationary worries.

Sterling rose more than half a cent against the dollar after the Bank’s announcement and later climbed above $2.11, setting a 26-year high. However, the pound’s trade-weighted index, monitored closely by the MPC, is down by some 2 per cent since early August.

Despite yesterday’s vote, a majority of City economists still believe lower interest rates remain on the agenda for next year as the fallout from the credit crunch and effects from a weakening US economy are felt.

The Bank will make its position clear next week with the publication of its quarterly Inflation Report, its first since the seizure in global credit markets that began on August 9.

Although Britain’s economy grew at a buoyant 3.3 per cent in the third quarter, evidence that it is set to slow fairly sharply into 2008 has piled up in recent weeks. At the same time, inflation in September on the consumer prices index stood at only 1.8 per cent, below the MPC’s 2 per cent target.

Among signs that the economy is now coming off the boil, the past few days have seen official figures for manufacturing showing that the sector’s output succumbed to a 0.6 per cent drop in September. The same day, a key survey of the services sector, the engine room of the economy, pointed to an abrupt slowdown, with activity falling to its lowest since May 2003.

Signs that the housing slowdown is spilling over into the high street have grown. A snapshot of consumer sentiment showed households’ willingness to make “major purchases” at the lowest level since December 1995. The British Retail Consortium’s latest survey also showed that annual growth of “like-for-like” sales slowed to only 1 per cent in October, from 3 per cent in the previous month.

Ian McCafferty, the CBI’s chief economic adviser, said: “No change to interest rates was not unexpected as neither the outlook for inflation nor the economy clearly justified a cut.”

But the British Chambers of Commerce said it regretted the move, arguing that the Bank should prioritise limiting the risk of a significant economic downturn.

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