Further evidence of a weakening housing market emerged yesterday as the Halifax reported that prices fell for the second month running in May, pulling the annual rate of increase to a four-year low.

Analysts said that, combined with growing signs of a sharp slowdown in consumer spending, is likely to lead the Bank of England to cut interest rates this autumn, although not at its meeting starting today.

The UK's largest mortgage lender said the average house price fell 0.6% last month - the largest drop since last October - after a 0.1% fall in April. Prices are now down 0.1% over the first five months of the year but are 5.7% higher than last May.

The annual rate is down from 7.8% in April and a peak of 22.1% last July. It is also the lowest since May 2001. The Nationwide last week said prices were up 0.3% in May but it reported an annual rate down to 5.5%, the lowest for nine years.

In spite of the weakness, the Halifax remained upbeat. "We continue to forecast a modest decline of 2% in house prices this year across the UK. The market is underpinned by sound fundamentals including record employment levels, good affordability and rising real earnings," said Tim Crawford, the Halifax's economist.

But other economists are less sure, arguing that a dramatic fall in first-time buyer numbers and mortgage approvals means that sellers will eventually have to drop their prices. The Halifax admitted that sales were down about 30% so far this year compared to the same period last year, although it said mortgage approvals had improved for the third month running in April.

The Nationwide said last week that prices in London and the south-east were falling and anecdotal reports from housebuilders suggest they are having to cut prices by more than 10% to shift new-build apartments.

Separately, the government revealed that its take from stamp duty on house purchases had quadrupled since 1997 with the average buyer paying £2,560 in 2003/2004 compared with £570 in 1997/1998. This is partly due to rising house prices but also to rises in stamp duty rates.

The Nationwide yesterday released its latest consumer confidence indicator showing people had become less confident about the future for the third month running.