(Adds details, background, comment from economist)
LONDON, March 31 (Reuters) - British house prices fell in March for the first time since mid-2015, mortgage lender Nationwide said on Friday, another sign that households are turning more cautious as the country prepares to leave the European Union.
Nationwide said house prices declined by a monthly 0.3 percent, compared with a rise of 0.6 percent in February.
In annual terms, prices were 3.5 percent higher, the weakest increase since August 2015.
Economists polled by Reuters had expected house prices to rise by 0.4 percent in March from February and annual growth of 4.1 percent.
A separate Reuters poll published in February forecast that house price growth would slow sharply to 2.5 percent this year and remain subdued in 2018 and 2019 as the country leaves the EU.
British Prime Minister Theresa May launched the two-year process of leaving the EU on Wednesday.
The fall in sterling since the June referendum is pushing up inflation and wage growth remains sluggish, reducing the spending power of households.
“March’s softer Nationwide house price data, following on from the Bank of England reporting a dip in mortgage approvals in February, fuels our belief that the housing market is being increasingly affected by the increasing squeeze on consumers and their concerns over the outlook,” Howard Archer, an economist with IHS Markit, said.
Nationwide said six regions saw the pace of house price growth accelerate, six saw a deceleration and one - the East Midlands - recorded the same rate as the previous quarter.
“Interestingly, the spread in the annual rate of change between the weakest and strongest performing regions was at its narrowest since 1978 at 6.8 percentage points - the second smallest gap on record,” Nationwide economist Robert Gardner said. (Writing by William Schomberg; editing by Alexander Smith and Susan Fenton)