Is the UK heading down the same road to ruin as America?

House prices are falling, so said the Nationwide Building Society on Friday, after it's figures showed prices dropping for the fifth consecutive month.

The gloomy outlook on house prices coincided with new data showing consumer confidence at a 15-year low and weaker household spending, raising the risk of severe economic slowdown.

Annual house price inflation fell to 1.7 per cent, its lowest in 12 years, Nationwide said, and unless the housing market does better in April than this month, the inflation measure will dip below zero in a month's time.

With Britain facing the likelihood of house prices falling year- on-year and mortgages becoming harder to acquire, the prospect has risen of a US-style vicious circle of falling prices, ever more pessimistic expectations, falling demand and even more cautious lending.

Such a scenario, alongside a sharply slowing economy, sent sterling to a new low against the European single currency on Friday. The value of one euro rose above 79p ; it has risen by almost 18 per cent against sterling since the credit crisis started last summer.

Official figures published on Friday also showed strains in the British economy. Household spending grew by only 0.1 per cent in the last quarter of 2007, the Office for National Statistics said, revising down earlier estimates.

Separate figures from the research group GfK NOP also showed consumer confidence fell in March to the lowest level since 1993.

Economists expect consumer spending to slow further over the coming months in response to tighter credit conditions, rising food and energy bills and greater economic uncertainty.

"With falling house prices, sluggish real incomes, plunging confidence and general weakness in surveys of retailers, we expect the official retail sales data to weaken markedly in coming months," said Michael Saunders, economist at Citi.

Richard McGuire, strategist at RBC Capital Markets, said anecdotal evidence of lenders raising mortgage rates as demand surged "compounds the poor outlook for the consumer and housing sectors clearly evidenced in the data."

The housing market is the key and current prices can only be sustained if homeowners are willing to take on an even greater debt burden. This proportion is already high when compared to historical levels.

According to Leigh Goodwin, an analyst at Fox-Pitt, Kelton, someone buying a house today will, on average, spend 24 per cent of their income servicing the mortgage over its 25-year life. This compares to just 14 per cent at the peak of the last housing boom, in 1989.

These figures suggest that one of the factors in peoples' decision to buy property is an expectation that it will continue to rise in value. If house prices fall, this spiral could go into reverse, triggering a broader slump.

"When house prices fall, the mortgage goes from being the last thing people stop paying to be being the first thing they stop paying," says Mr Goodwin. "The potential for something very nasty is with us."