Homeowners were given assurances but no immediate relief yesterday as house prices fell at the fastest rate in a quarter of a century and the Bank of England decided against cutting the interest rate.

Gordon Brown said that the Government would do all it could to help families and businesses to pull through the global economic downturn. In a speech to the Scottish CBI in Glasgow the Prime Minister said that he was “cautiously optimistic” about Britain’s economy as he sought to repair the political damage caused by Alistair Darling’s claim that the country faced the worst conditions in 60 years.

Mr Brown’s speech was delivered against a bleak backdrop as the latest series of economic indicators showed that property prices had fallen by 12.7 per cent in the past 12 months, wiping more than £25,400 off the value of an average home.

Figures from Halifax show the fastest rate of decline since the bank started its house price index in 1983. The rapid drop in house prices and the threat of recession was not enough, however, to persuade the Bank of England’s Monetary Policy Committee (MPC) to vote for a rate cut.

Despite a slump in output, the MPC kept rates at 5 per cent in an attempt to control inflation, which reached a 16-month high of 4.4 per cent in July. The Bank has forecast that prices will continue to rise in the coming months, peaking at 5 per cent before the end of the year.

In an implicit criticism of his Chancellor, Mr Brown used his speech to counter claims that Britain was facing the worst conditions since the 1940s. “Undoubtedly we face a challenging period in the British economy, particularly given our position at the heart of the world’s financial markets, and both the Chancellor and I understand the difficulties you face,” he said. “But while never complacent about our economic prospects, I am also cautiously optimistic about the long-term resilience and underlying strengths of the British economy.”

He promised further support for families struggling with rising food and energy bills, with the Government’s much-trumpeted package for tackling fuel poverty expected to be published next week.

While people understood that no national government alone could “put everything right that is creating hardship”, he said that they did look to ministers to take action to help them through difficult times. “We will not let them down,” he said. “We will do what it takes to bring security to families on modest and middle incomes and we will ensure that no one who is prepared to work hard and adapt to change will lose out as a result of global forces.”

The Government’s £200 million mortgage rescue package will do nothing to help borrowers in negative equity. More than 70,000 people have mortgage debt higher than the value of their homes, according to research from Standard & Poor’s, the credit ratings agency, which suggested that each further 1 per cent fall in house prices would push an extra 120,000 borrowers into negative equity. Those in negative equity must sell their home at a loss if they cannot keep up with their mortgage repayments or if they need to move home.

There was a glimmer of hope as some analysts said that a rate cut was more likely if inflation starts to fall later in the year – as has been forecast. Alun Powell, senior economist at HSBC, said: “We expect the MPC to cut rates over the next month or so, which would provide welcome relief to many homeowners.”

Howard Archer, of Global Insight, the economic consultancy, predicted that rates would be cut to 4.75 per cent in November and “significantly further to 3.5 per cent in 2009”.

The average house price is £174,178, just below the threshold for the Government’s new stamp duty regime, which will exempt stamp duty on properties below £175,000.

Halifax said that homeowners in some parts of the country would benefit less than others. Only 12 per cent of homes in London sold for less than £175,000 last year, compared with 75 per cent in the North of England.