"Sharply reduced housing equity withdrawal will add to the mounting pressure on consumer spending already coming from modest disposable income growth, rising utility bills, elevated food prices, tighter lending conditions, higher mortgage rates, increased debt levels and rising unemployment."

House prices have jumped three-fold since 1996, providing households with a windfall stash of equity that has helped fund a booming consumer sector.

Figures from the Nationwide show house prices fell for an eighth straight month in June to stand more than 7 percent below the peak hit last year.

Homebuilders and retailers are already feeling the pinch. Shares in Britain’s biggest housebuilder Taylor Wimpey tumbled on Wednesday after it said it had been unable to raise fresh capital.

Marks & Spencer, meanwhile, issued a shock profit warning and said the consumer downturn was likely to be deeper and more prolonged than previously expected.

(Reporting by Christina Fincher; Editing by Mike Peacock)