Further gloom enveloped the country's consumer and housing sectors yesterday as the Nationwide reported the first house price fall in eight months while the CBI said retail sales had fallen again in February. The employers' group also said last month had seen the biggest job cuts in the once buoyant retail sector in the 23-year history of its distributive trades survey.

Its February report showed a balance of -18% of retailers reported lower sales than a year ago, down from -11% in January. Ian McCafferty, the CBI's chief economic adviser, said: "February has been a disappointment. The improvement in sales in the last two weeks of December has not been maintained."

John Longworth, executive director of Asda and chairman of the CBI's distributive trades panel, added: "With rapidly rising household bills for energy, water and council tax, it's no wonder that consumers remain cautious about spending money except on basics such as food."

Mr McCafferty said he thought the Bank of England would soon have to cut interest rates by a quarter of a percentage point from their current 4.5% because inflation was likely to remain below the Bank's 2% target, allowing it to reduce borrowing costs to give the economy a boost. He said retailers' fortunes would probably improve slightly during 2006, rather than continue to decline. "There are tentative signs that the clouds may be starting to lift," he said.

But a monthly snapshot of consumer confidence from research group GfK showed a further decline, suggesting the CBI's cautious optimism may be misplaced.

The Nationwide's latest snapshot of the housing market said prices fell 0.2% in February from January, dragging the annual rate of increase down to 3.7%. That was the first monthly fall since last June but followed a very strong rise in January. Most other house price data has suggested the market steadied last autumn and has strengthened slightly since, although the Nationwide said boom conditions would not return.

"We expect the weaker economic factors to begin to dominate over the next two to three months and to prevent strong house price rises in 2006," said Greg Fuzesi, senior economist at Nationwide.

Economists said the figures taken together showed that the Bank of England may have been over-optimistic in expecting a healthy recovery in consumer spending.