The housing boom boosted profits in 2002

Alliance & Leicester reported an 18% jump in profits to �468m for the year, ahead of City forecasts.

But the bank also said it was "mindful of the potential dangers of the economic climate".

Britain's housing market has soared in recent years as interest rates have fallen to historically low levels, and as the south-east of the UK experienced a property shortage.

Housing outlook

However, chief executive Richard Pym suggested this would not continue into 2003.

"We expect single figure increases in average house prices, but that may mask house price decreases in some localised areas."

Analysts are divided on their predictions for house prices, but most do not expect them to crash.

Property prices in London and south-east England have fallen for the first time since November 2001, a report by the Royal Institution of Chartered Surveyors said on Thursday.

Depressed economy

The overall economic outlook is also deteriorating, with manufacturing in the doldrums, consumer spending falling and personal borrowing at record levels.

"The economic environment we face in 2003 is more uncertain, with much of the world economy entering 2003 in a somewhat depressed state," said Mr Pym.

A&L reported that it total dividend for 2002 increased by 10% to 39.9 pence.

Shares in the group closed 7.5p lower at 772.5p in London on Friday.