Jan. 26 (Bloomberg) -- U.K. house prices had the biggest annual decline since at least 2001 in January as the recession worsened and banks curtailed lending, Hometrack Ltd. said.

The average cost of a home in England and Wales fell 9.4 percent from a year earlier to 158,300 pounds ($216,000), the London-based property researcher said in a report today. The monthly decline of 1 percent was led by London, where prices slid 1.1 percent from December.

Prime Minister Gordon Brown pledged last week to use “every weapon at our disposal” against a credit squeeze that’s savaged the mortgage and housing markets. The turmoil caused the biggest economic contraction since 1980 in the fourth quarter, pushing the U.K. into a recession.

“The market is at the mercy of the economy,” Richard Donnell, director of research at Hometrack, said in the statement. “The short-term prospects for the economy and levels of unemployment are at the forefront of most consumers’ minds and these will be key to the performance of the housing market over 2009.”

The average time a property spends on the market rose to 12.3 weeks, a 45 percent increase from a year earlier, while sellers are achieving less than 90 percent of their asking price, Hometrack said. The group forecasts prices to decline 10 percent this year.

All 10 regions tracked in the survey of 5,800 real-estate agents and surveyors showed price declines, the group said.

Recession Spreads

The U.K. economy contracted 1.5 percent in the fourth quarter as credit markets seized up, the Office for National Statistics said Jan. 23. Services industries, manufacturing, and construction all shrank, the report showed.

Mortgage approvals fell to the lowest since at least 1999 in November and probably dropped further in December, according to the median forecast of 23 economists in a Bloomberg News survey. The central bank will release that data on Jan. 30.

Last week, Brown pledged a second bailout package for British banks in a bid to spur lending. The government will back hundreds of billions of pounds of securities hurt by the market turmoil, and will boost its stake in Royal Bank of Scotland Group Plc to 70 percent from 50 percent.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

Last Updated: January 25, 2009 19:01 EST