We expect house prices to continue rising over the coming 12 months, albeit at a more modest pace

Martin Ellis, Halifax chief economist

The mortgage bank said house prices fell 0.5% in October, the first fall in nearly a year, after price increases ground to a halt in September.

But the decline was less than the one seen in October last year, so annual house price inflation actually rose slightly from 8.8% in September to 9.4%.

The Halifax survey echoes figures released by last week Nationwide, which also showed a 0.5% fall in prices in October.

Economists have long been predicting that the economic slowdown must start to filter through into the UK's housing market.

Downward trend

The news gives the Bank of England's Monetary Policy Committee a further reason to cut interest rates again when it meeets later this week.

The MPC has already cut interest rates six times this year, to a 37-year low of just 4.5%.

Commenting on the latest house price figures, Halifax chief economist Martin Ellis said: "House price movements over the past few months as a whole indicate a clear downward shift in the underlying trend, with prices increasing at a somewhat slower pace compared with earlier in the year.

"This is consistent with reports from estate agents and house-builders and the latest market figures on the number of mortgage approvals, which all show signs of a slowdown in housing market activity."

He said the housing market was responding to the wider economic picture.

Weakening consumer confidence and recent job losses had played a part in cooling the market.

'Knock-on effect'

"A knock to confidence in the immediate aftermath of September's terrorist attacks in America may also have contributed to last month's small fall in prices," Mr Ellis said.

"Looking ahead, continuing economic growth, low interest rates and housing affordability levels that are not stretched should support the housing market.

"We expect house prices to continue rising over the coming 12 months, albeit at a more modest pace," he added.