NatIonwide is forecasting a six per cent rise in prices next year, a far cry from the 2001 figure of nearly 12 per cent.

It also sees house sales volumes being slightly down from 1.44 to 1.37 average as earnings drop and unemployment rises.

Alex Bannister, Nationwide's group economist, said: "The UK appears likely to avoid recession continued resilience among consumers, swift interest rate cuts, and the promise of higher government spending should mean that the UK encounters a slowdown rather than a slump.

"Higher unemployment will lead to a modest rise in mortgage arrears.

"But with high equity levels we do not foresee 'forced sales' being a significant issue.

"The combined effects of weaker pay and bonuses growth do however suggest that, after six successive years of price buoyancy, annual house price inflation will drop back to around six per cent by the end of 2002.

"Around the regions price growth is likely to remain restrained in areas affected by the manufacturing slump."

House prices grew by 12 per cent this year compared with Swindon-based Nationwide's original forecast of seven per cent.

Stronger real take home pay and increased confidence in the market that were the key factors behind a stronger than expected performance. "The other factor was obviously lower interest rates," said Mr Bannister.

"Lower interest rates have done more to boost consumers' optimism about the economic outlook than they have to improve affordability.

"House purchase has appeared extremely attractive while mortgage rates have been half the rate of annual increase in house prices."

For the UK to avoid recession, consumers must continue to spend and borrow and, so far, the evidence was that they would.

"They have tended to increase their debt levels, in spite of seeing the value of their financial wealth decline in line with equity market values (the FTSE all share index is almost 15 per cent down compared with a year ago).

"This is because falls in equity markets have been partly offset by rising housing wealth, while, at the same time, borrowing costs have fallen in line with lower interest rates"

Mr Bannister said that while the consumer looked set to keep the economy afloat next year, the corporate sector was not in such a buoyant mood.

"Output by manufacturers is still at the same level as in 1997, squeezed by fierce global competition and the strength of sterling," he said.

"Other sectors are also facing difficulties, especially those unable to avoid the shock waves from the global slowdown, September 11 and the bursting of the technology bubble.

"Not only are many companies heavily indebted, but profit growth has been non- existent this year. This has prompted a sharp drop in investment by companies and is increasingly leading to job losses.

"Unemployment is set to rise to around 1.2 million next year - an increase of nearly 200,000."