The Bank of England is under increasing pressure to cut interest rates this month to give borrowers a new year boost, an economist claims.

The prediction comes as latest figures show house prices dipped 0.5% last month compared with November.

Building society Nationwide also revealed annual house price inflation fell back to a 19-month low of 4.8% in December, down from 6.9% in November and a high of 11.1% in June.

It means the average price of a house in the UK now stands at £182,080, a rise of £8,334 during 2007.

Howard Archer, an economist at Global Insight, said: "It is clear that the housing market ended 2007 under mounting pressure from increased affordability pressures and tightening lending practices, and it looks set for further deterioration in 2008.

"The rising risk that the housing market could be headed for a sharp correction maintains pressure on the Bank of England to trim interest rates again early in 2008."

Fionnuala Earley, chief economist at Nationwide, said the housing market suffered significantly as 2007 drew to a close.

She said: "Most indicators now show that demand is responding to the pressures of weak affordability, past increases in interest rates and the lower house price expectations that we had expected to take hold earlier in the year."

Experts predict that the Bank of England will make two interest rate cuts of 0.25% in 2008 to bring it down to 5%.

Ms Earley said this will help the housing market bounce back later in the year, but it is unlikely to lead to a "big recovery" in activity.

However, Mr Archer is forecasting house prices will plunge 3% this year, and even signalled that a larger "correction" may be on the horizon.

He said: "Probably the biggest risk is that the economy slows sharply over the coming months and unemployment starts rising significantly.

"This would be liable to lead to a marked increase in the number of people having to sell for distressed reasons, particularly given the extent to which many households have had to stretch themselves to the limit to buy a house.

"A sharp housing market correction could also be triggered if both sellers and buyers start expecting prices to fall sharply."

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