New evidence of a stalling British economy and a fall in consumer confidence emerged today as the Nationwide Building Society reported that house prices fell by 0.2 per cent in June.

In its latest monthly survey of house prices, the Nationwide revealed that the annual rate of house price growth in the UK is now running at its lowest rate since July 1996.

In figures that are likely to fuel fresh calls for a cut in interest rates when members of the Bank of England's monetary policy committee meet next week, the Nationwide said home buyers and sellers have now reached "stalemate" over house prices and are waiting for a change in the cost of borrowing.

Fionnuala Earley, Nationwide's group economist, said: "Consumer sentiment seems to be the key. Until now, Nationwide's Consumer Confidence Survey has suggested that consumers have been fairly confident about their financial position - not surprising with continuing employment growth - but that they are more concerned about the future.

"The most recent survey, however, shows some weakening in current sentiment and this may explain their reluctance to stretch themselves now. Just two months ago all the talk was about increases in rates; the situation has now reversed. In such an uncertain climate consumers might just be taking that 'wait and see' approach," she said.

Today's figures from the Nationwide follow a grim report yesterday from the CBI, the association for British businesses, showing that high street sales this month have fallen to their worst level for 22 years. The CBI said that its three-month moving average of sales, an indicator of underlying movements in high street sales patterns, had also fallen.

City economists cautioned that yesterday's CBI's figures were set against numbers from last June, when sales were strong. And, although economists are beginning to predict that the Bank will move sooner rather than later on interest rates, they were also careful not to overreact to this morning's Nationwide report.

Howard Archer, chief UK economist at Global Insight, said: "The Nationwide survey provides further evidence that there is something of an impasse, though, between sellers unwilling to drop their prices significantly and buyers unwilling, or unable, to pay the prices being asked.

"We believe this could continue for some time to come, given that very few sellers are currently having to sell for 'distressed' reasons, while buyer affordability seems likely to improve only gradually over the coming months."

Mr Archer said that the housing market is more likely to see a prolonged period of "relatively subdued activity" rather than a sharp correction, although much will depend on how the economy develops over the coming months.

He added: "The Bank of England will probably be reasonably happy with the current state of the housing market, and it is unlikey to have a major impact on interest rate decisions for now."

At its most recent meeting, two members of the Bank's monetary policy committee voted in favour of a rate cut, in the first calls for a reduction in the cost of borrowing since July 2003.

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