By Fiona Shaikh

LONDON (Reuters) - House prices fell at their sharpest rate in at least a quarter of century in October, raising expectations the Bank of England will deliver a big interest rate cut on Thursday to stave off a severe recession.

The country's biggest mortgage lender, Halifax, said house prices fell 2.2 percent in October, the ninth successive decline. That took house prices down 14.9 percent compared with a year ago, the steepest fall since records began in 1983.

The figures, published just hours before the Bank of England announces its latest interest rate decision, boosted expectations policymakers would slash borrowing costs by more than half a percentage point.

"The Halifax numbers are horrendous," said George Buckley, chief UK economist at Deutsche Bank. "They support our view the Bank of England will cut interest rates by 100 basis points today."

Even a cut of that magnitude may not bring much immediate comfort to struggling homeowners as banks have been reluctant to cut their mortgage rates in line with official rates because of the deepening credit crunch in financial markets.

Earlier this week, mortgage lender Abbey (SAN.MC: Quote, Profile, Research) announced it was raising rates on some home loans and HSBC (HSBA.L: Quote, Profile, Research) has said it expects some "stickiness" by banks in passing on forthcoming rate cuts.

SLUMP CONTINUES

Prime Minister Gordon Brown has urged banks to pass on any interest rate cuts to consumers, but economists say lower rates will not be enough to halt a slide in the housing market.  Continued...