Jan. 28 (Bloomberg) -- U.K. house prices declined for a fourth month in January as higher interest rates sapped confidence among buyers, a report by Hometrack Ltd. said.

The average cost of a home in England and Wales fell by 0.3 percent, the same rate as in December, to 174,700 pounds ($346,000), the London-based research group said today. The average selling time rose to 8.5 weeks, the most since the survey of real-estate agents and surveyors began in 2001.

``Weak confidence among would-be purchasers continues to put downward pressure on house prices,'' said Richard Donnell, director of research at Hometrack. ``With most buyers also being sellers, households are now waiting until there are signs of general stability before committing.''

Economists predict the Bank of England will reduce the benchmark interest rate further on Feb. 7 after cutting it from a six-year high last month. Governor Mervyn King said last week that a weaker property market ``will go hand in hand'' with slower consumer spending in 2008.

Still, faster inflation along with slower economic expansion mean that the bank faces a ``difficult balancing act'' this year, King said Jan. 23. Policy makers kept the rate at 5.5 percent this month.

``Alongside data showing weakness in activity, the bank has flashing on its radar inflation risks that look to be pronounced and enduring,'' said David Tinsley, an economist at National Australia Bank in London who formerly worked at the Bank of England. ``Rates will get to 4.75 percent this year, and then the bank will stay on hold.''

`Wait and See'

Home prices increased 2.3 percent from a year earlier, the least since June 2006, Hometrack said. The supply of homes for sale declined 4.6 percent in the month as people became more pessimistic about future price gains.

```Wait and see' is likely to remain the default position of most homeowners unless they need to move,'' Donnell said in the statement. ``For the brave-hearted, there could be some deals to be done if the seller needs to sell or is realistic on the achievable price.''

House prices may decline about 5 percent this year and about 8 percent in 2009, Roger Bootle, economic adviser at Deloitte & Touche LLP, said in a report today.

In London, new home prices are now lower than they were a year ago, according to a report by SmartNewHomes.com published today.

U.K. home prices probably won't pick up until mid-2009, according to Instant Access Group, the country's biggest property investment club.

Growth Outlook

The weaker residential property market will drive the worst U.K. economic performance since 15 years ago, when Britain last emerged from recession, Bootle said. He predicted the economy, which grew 3.1 percent in 2007, may expand 2 percent this year and even less in 2009.

All 30 economists in a Bloomberg News survey expect the central bank to lower the main rate to 5.25 percent next month. Policy maker David Blanchflower cited the weakening property market as one reason why the bank needs to ``get ahead of the curve'' with lower rates, according to an interview with The Guardian newspaper published today.

``Not only is the interest-rate environment far less favorable, but the global financial crisis and the associated credit crunch have brought an end to the period of easy credit that in recent years has been the bedrock of the rapid rises in house prices,'' Bootle said. ``There is a risk that the economy will slip in into a full-blown recession.''

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Jennifer Ryan in London at jryan13@bloomberg.net.

Last Updated: January 28, 2008 06:17 EST