March 10 (Bloomberg) -- U.K. housing sales dropped to the lowest since at least 1978 as the recession pushed prices down further, the Royal Institution of Chartered Surveyors said.

The average number of transactions in a survey of real- estate agents and surveyors dropped to 9.5 per respondent in the quarter through February, the lowest since the data began three decades ago, the group said today in London. The gauge of house prices fell last month to minus 78.3 from minus 76.6 in January.

The number of new homes being built in Britain may fall to the lowest since 1921 this year as the recession deepens, the National Housing Federation predicted today. The Bank of England cut its key interest rate last week to 0.5 percent, the lowest ever, and said it will buy assets to replenish banks’ balance sheets and encourage lending.

“Mortgage finance is still a problem, and people are worried about job security because of the recession,” Brigid O’Leary, an economist at RICS, said in a Bloomberg Television interview. “The housing market is going remain weak for the rest of this year.”

The housing data add to signs that the U.K economy continues to deteriorate. Manufacturing fell by the most since records began in 1968 in the quarter through January from the previous three months, the Office for National Statistics said in a separate report.

Construction Forecast

The number of new homes being built in Britain may fall by half from the total of 140,000 for the current financial year, the National Housing Federation said. House prices fell an annual 17.7 percent last month, Lloyds Banking Group Plc’s Halifax division said last week, the most since the survey started in 1983.

Still, the RICS measure of potential buyers registering with real-estate agents rose to the highest since August 2006, today’s report showed. While the index for price expectations increased, it remained negative at minus 78, indicating that surveyors predicting further declines outnumbered those expecting gains.

U.K. mortgage rates declined in February by less than the full amount of the Bank of England’s interest-rate cut, central bank data showed today. The average cost of a home loan fixed for 24 months with a 25 percent deposit slipped to 4.32 percent from 4.35 percent in January after the central bank lowered its key rate by half a point.

Market ‘Blockage’

“The lengthy process of obtaining mortgage finance, even for those with large deposits, is contributing towards the blockage in the market place,” Jeremy Leaf, a spokesman for RICS, said in the statement today. “Without further intervention, the housing market will continue to stagnate and the opportunity to take advantage of this renewed interest could be lost, which will inevitably have serious implications for the wider economy.”

The Bank of England on March 5 lowered the benchmark interest rate by half a point and said it will spend 75 billion pounds ($104 billion) in the next three months to buy government and corporate debt. Governor Mervyn King said the bank will expand the money supply to stimulate growth.

The housing slump mirrors waning consumer demand in the U.K. after the economy contracted 1.5 percent in the fourth quarter. Retail sales fell 1.8 percent from a year ago in February, a separate report by the British Retail Consortium showed today.

“The women’s and men’s clothing sectors had their worst month since April 2008,” said Helen Dickinson, head of retail at KPMG, in a statement. “More announcements of job losses and other cost cutting measures in the sector look likely.”

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

Last Updated: March 10, 2009 07:07 EDT