FEARS that the property market downturn could derail the economy grew yesterday, after figures showed a slide in consumer confidence as house price inflation dropped into single digits for the first time in more than three years.

In findings that will fuel government anxiety over the impact of the “feel-good” factor on the general election, research for the Nationwide Building Society found growing edginess among consumers.

The report came as Halifax, Britain’s biggest mortgage lender, said the annual pace of increase in house prices fell to 9.7 per cent last month, despite a bounce in March prices.

In the latest sign that sliding house prices are sapping economic sentiment, Nationwide reported that six of seven confidence indicators in its poll fell last month. Confidence in the economy’s state fell by three percentage points, while confidence in current and future employment prospects tumbled 12 and 14 points respectively.

Consumers also grew gloomier over income expectations and willingness to spend. However, in a contradictory sign of uncertainty, confidence in future economic prospects rose.

In a separate sign of consumer unease, SPSL, the market research group, said that shopper numbers fell steeply, by 4.3 per cent, in the Easter fortnight, from Easter last year.

The data suggest that Britain’s householders are on edge as they confront the same set of mixed economic indicators that this week present the Bank of England with a tough decision over interest rates.

Worries over the economy were fuelled on Monday by record oil prices and the first drop in housebuilding activity for six years. However, anxiety was eased yesterday as a key gauge of the services sector jumped sharply.

Economists said that the buoyancy of the CIPS/Reuters purchasing managers’ survey of services, which was the strongest for almost a year, kept higher interest rates on the agenda. The survey’s main gauge of activity rose to 57.0 in March, from a February reading of 55.1, taking it to its best level since last May — any figure over 50 indicates expanding activity.

Despite this, the City is virtually unanimous in expecting the Bank’s Monetary Policy Committee (MPC) to hold interest rates tomorrow against the backdrop of the election. Opinion remains divided over whether the MPC will push through a rate rise in May, on the Monday after the May 5 general election.

The Bank faces a quandary between the view that further strong growth will push up inflation as spare capacity is used up, and conflicting concern that consumer spending could wilt in the face of the housing downturn.

Economists said that yesterday’s Halifax house price figures reinforced other evidence that the property market is stabilising for now, with prices largely static.

Halifax said average house prices jumped by 0.5 per cent last month but this simply revised a fall in February. Similarly, Nationwide’s house price survey showed a fall in March after a February rise, so that both surveys show a consistent picture of little change over the two months taken together.

The Halifax figures came as a research group issued a health warning over the state of the mortgage market. Datamonitor predicted that mortgage lending in the UK would decline by 10 per cent over the coming three years.

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