According to a new report, from property agent Rightmove, vendors in the capital have "recognised the need to price aggressively" in order to make their properties more affordable for potential buyers.
The almost unthinkable a year ago has now happened with London house prices falling by 5.3% in the last month, according to the figures.
Like many other parts of the country, the capital has even found itself falling into 'negative equity' territory for asking prices year-on-year.
Meanwhile, it has been predicted that hundreds of thousands of people could lose their jobs over the next two to three years and that unemployment levels may top two million.
The British Chambers of Commerce (BCC) also forecast that the UK economy will enter recession within the coming year.
In its latest quarterly economic forecast, the BCC said Britain was heading into a "technical" recession of two or more quarters of declining output over the next six or nine months.
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But a major recession similar to the downturn seen in the early 1990s was unlikely, the organisation said.
The forecast also predicted that unemployment would climb by some 300,000 and could break through the two million barrier if conditions deteriorated.
The main reasons for the slump will be a "very sharp" slowdown in consumer spending growth as households tighten their belts amid soaring bills and falling house prices, the BCC said.
However, as the economic slowdown continues, there is a growing realism among UK businesses that they must take action for the tough times ahead.
According to the latest Business Confidence Monitor (BCM) from the Institute of Chartered Accountants in England and Wales (ICAEW), published today, the BCM Confidence Index declined from -19.7 in the previous quarter to -25.7.
Commenting on the results, Robin Fieth, the ICAEW's Executive Director of Operations and Finance, said: "The survey paints a stark picture of the challenging business environment that has emerged in the UK over the past year, with the economy facing its most difficult period since the early 1990s.
"This is now compounded by high and uncertain oil and commodity prices creating inflationary pressures and fall out from the UK housing market downturn which has continued to gather pace.
"At the same time we are seeing a new realism among businesses about the need to weather the current economic conditions with projected staff and capital investment both significantly down on this time last year."
He added: "As an increased number of businesses express concern over late payment, effective cash flow management is now more essential than ever for those sectors with rising input costs, such as manufacturing, transport and storage."
Also, confidence in the construction and property sectors have fallen sharply as the housing downturn has gathered pace, the report noted.
In addition, sectors reliant on the previously buoyant UK consumer are also feeling under pressure.
With increased inflation causing a squeeze on real disposable incomes, and the housing market slowdown impacting on consumer confidence - now at its lowest since the 1970s - retail and wholesale and hotels and catering also register large falls in confidence.
(BMcC/KMcA)
