As concerns over the slowing economy grow, new figures show Britain's manufacturing sector has entered recession while there has been a warning that house prices could be set to fall.

Despite a 0.3 per cent rise in manufacturing output in June, the second quarter of the year saw a two per cent fall overall. With the new figures showing the second consecutive quarter of falling output, the sector has now met the technical definition of being in recession.

The two per cent fall is also the worst performance since 1991.

The Office for National Statistics figures show the continuing impact of the strong pound and weak global economy on Britain's hard-pressed manufacturing businesses. With manufacturing accounting for just over 20 per cent of the economy, the downturn in the sector has begun to impact on the service sector which has seen its growth rate falling over recent months.

Manufacturing unions called for government action to help the sector.

"Government must encourage investment by improving capital allowances and corporate Britain must concentrate less on its own pay and more on making long-term investment decisions," said Peter Booth of the Transport and General Workers' Union.

He said that the UK invests 25 per cent less per worker than he OECD average. "We have to plug the gap before it is too late or a further 250,000 manufacturing jobs could be at risk in the next 2 years," he warned.

The bad news for manufacturing comes as new figures show the number of property sales has fallen by 35 per cent during the past 12 months from 270,579 in the second quarter of 2000 to 175,244 in the first quarter of 2001. Information group Experian also said sales of homes worth more than £1 million had slowed, falling by 21 per cent over the same period.

Bruno Rost of Experian said: "The decline in sales is affecting every section of the housing market and in every area of England and Wales. Although house prices have appeared to rise, the actual volume of sales has taken a nose dive in all areas."

"It has yet to be seen whether this signals the beginning of a substantial downturn in house values, or a plateau in a generally upward market," he added.

Rost warned that a global slowdown, job losses and lower corporate profitability would all have an impact on the housing market. "There is no way this market can be sustained at the level of growth it has been going at," he said.

The new announcement follows a warning from the Nationwide Building Society last week that house prices are currently rising at an "unsustainable rate".

With the average house price now nearly £90,000 the Nationwide warned that the market will have to cool at some stage.

Despite the recent increases, high street lenders believe that the current economic slowdown will impact upon the housing market at some stage later this year.

The latest news will be seen as a justification of the Bank of England's surprise decision to cut interest rates last week. Citing "pressures on the externally exposed sectors of the UK economy" and weak indicators of global economic activity, the Bank last week cut interest rates by 25 basis points to five per cent.

However, while the economy overall is continuing to grow, government claims to have ended "boom and bust" will become increasingly vulnerable. The economy is unlikely to grow at the 2.25 to 2.5 per cent rate forecast by the chancellor in his Budget.