The prospects of a further rise in interest rates this year have diminished after reports showing the weakest mortgage market for nearly four years and the gloomiest retail sales outlook for a decade.

The Bank of England said that the number of approvals for home loans fell to 96,000 last month from 100,000 in July, the third successive monthly decline. The figure, the lowest since November 2000, follows a series of reports of a rapidly weakening property market.

On the high street, a Confederation of British Industry survey showed that more retailers were pessimistic over prospects than optimistic for the first time since March 1995. More stores saw falling sales than reported rising takings this month, with rising interest rates, energy bills and property market concerns blamed for the slowdown.

Ian McCafferty, the CBI's chief economic adviser, said: "Whilst some of last month's sales growth could be pinned on inclement August weather, these results suggest that a more meaningful slowdown is taking place."

In a further sign of weakening consumer confidence, GfK's monthly headline reading of household optimism fell to minus 7, weaker than analysts had expected.

The City was also surprised by a lowering to 3.6 per cent, from 3.7 per cent, of the official estimate of economic growth in the April-to-June period. While the new figure shows growth at well above the UK's long-term average, analysts had expected any revision to be upwards. The report also revealed a slowing in consumer spending growth to half the level of that in the three months before.

"The balance of UK data this morning is overwhelmingly weaker," George Buckley, the Deutsche Bank analyst, said.

Howard Archer, the Global Insight economist, said: "It seems increasingly likely that the Bank of England will leave interest rates unchanged for the rest of this year, and we are becoming ever less confident in our current forecast of a quarter-point hike in November."

Higher interest rates were "increasingly weighing down on the consumer", he added.

Andrij Halushka, the Centre for Economics and Business Research economist said that the figures "will strengthen the view that the current interest rate cycle is nearing its end".

On the currency markets, the diminished chance of a rate rise prompted a decline in sterling.

However, John Butler, the HSBC economist, pointed to the latest growth figure remaining well above Britain's long-term average.

"The overall health of the UK economy is looking fine for now and hence the market may be underestimating the risk of further rate rises," he said.

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