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In a speech to business leaders in Dover this week, Spencer Dale, the chief economist of the Bank of England warned that a further period of declines in property prices was likely.

"Homeowners and consumers face months of pain as the downturn in the housing market deepens and price rises for food and energy squeeze incomes," Mr Dale said on Wednesday (17 September).

"I recognise that this process of adjustment will be painful for many households," he continued in a speech at a Dover Chamber of Commerce breakfast meeting.

While a decline in the housing market, slowing consumer spending and tighter credit conditions push the economy towards recession, inflation, spurred by higher energy and food costs, reached an 11-year high. The Bank of England has kept the benchmark interest rate unchanged for the past five months.

"These risks are at present finely balanced," said Dale, who voted to keep interest rates unchanged at 5% this month. "A return to the remarkable stability of the past decade may not be in prospect. But neither is a return to the boom and bust of earlier years."

The UK will likely go through a period of "broadly flat" expansion and "relatively high" inflation, Dale stated, adding that growth will resume and inflation return to the bank's 2% target "in due course".

Consumer prices rose 4.7% in August from a year earlier, the most since records began in 1997, the Office for National Statistics said earlier this week. Bank of England Governor Mervyn King has said inflation will peak at around 5% in coming months.