House prices fell 2% in June, a smaller fall than the 2.5% recorded in May, says the latest report from the Halifax. The average UK house price remains now slightly higher than two years ago, the report says; more than 10% higher than June 2005 and almost 40% above the average price in June 2003.

However, prices are now 6.1% lower than they were a year ago, as the figures come up against the house price peak last year in August. However, amongst the doom and gloom there are still sound economic fundamentals in place, Halifax says: ‘The housing market continues to be underpinned by sound fundamentals,’ the report states. ‘All our research indicates that the labour market is the key driver of the housing market, employment is at a record high of 29.55m, and total employment increased over the six months to April.’

Martin Ellis, chief economist at the mortgage lender said they expect the UK economy to slow further into 2008, with a further rise in unemployment and low interest rates, accepting that inflationary pressures will restrict the Bank of England’s ability to reduce base rates below current levels. Meanwhile the Bank is expected to announce that it is keeping rates at 5% this lunchtime.