Pressure is mounting for a quick interest rate cut amid further warning signs for the troubled economy.

Banks said they planned to cut back further on lending to individuals and businesses in the run-up to Christmas, and there was more bad news about the stalling housing market.

Nationwide, the country's biggest building society, said house prices had dropped in the UK by more than 10% in the past year, with values in the Scottish market dipping by more than 7% in the past 12 months.

Meanwhile, the turmoil in the markets this week, which has led to consumers searching for the safest haven for their cash, saw Northern Rock removing a number of key products following a "significant inflow" of new business from customers wanting to take advantage of the 100% guarantee offered to account holders since the bank was nationalised in February.

The grim news for UK consumers was delivered in a Bank of England survey.

The major banks reported they had pulled back on lending by more than expected between June and mid-September and that they expected a further tightening of credit towards the end of the year.

The reduction in available credit will affect all products, including mortgages, credit cards and loans, according to the Bank of England's Credit Conditions Survey. First-time buyers were also warned they face a further tightening in criteria.

Analysts predicted the Bank of England could cut borrowing costs by as much as one half of a percentage point next week in light of more grim reports from the housing and finance sector.

The central bank has continually warned that tight credit conditions pose a particularly serious risk to economic growth.

"Consequently, we now think it is highly probable the Bank will cut interest rates next week despite still rising consumer price inflation," said economist Howard Archer of Global Insight.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "The prospect of the bailout in the US being passed by Congress may gradually enable credit markets to regain some composure."

Northern Rock has been forced to turn away savers because under the terms of its temporary public ownership status it can only hold 1.5% of retail balances. It acted to ensure the institution stayed within these limits.

The future of HBOS, however, looked more assured yesterday after its share price jumped by more than 10% following concerns that Lloyds TSB would be paying too much for the institution, given a significant drop in its value in recent weeks.

M&G, the sixth largest shareholder in both HBOS and Lloyds, said it supported the takeover under the original terms agreed.

Last night, the financial markets were on standby for the decision due from the US Congress on a $700bn (£385bn) rescue package for the nation's weakened economy. President George Bush said the lower house of Congress "must listen" and approve the bill after it was passed by "an overwhelming bipartisan majority" by its upper house on Wednesday.