UK house prices fell for a fifth straight month in March - news which helped push sterling to a fresh record low against the euro yesterday as financial markets bet the Bank of England would have to cut benchmark interest rates again soon.

Housing market experts now see a 78% chance of the first annual drop in UK residential property prices since the mid-1990s occurring this year.

A continuing surge in three-month interbank lending rates yesterday meanwhile spelled further trouble for mortgage interest rates, and consequently for the weakening housing market. Major mortgage lenders have been raising interest rates on home loans this week, as credit market troubles have intensified again.

Building society Nationwide said the average UK house price fell by a seasonally-adjusted 0.6% in March to £179,110. This cut the annual rate of increase from an already anaemic 2.7% in February to 1.1% this month - the weakest since March 1996.

Comparing the three months to March with the preceding quarter, Nationwide calculates the average house price is down 1.5%. This would equate to 6% on an annualised basis.

Nationwide said there had been a "clear change in sentiment" in the housing market since late last summer.

A poll published yesterday by news agency Reuters, conducted between Tuesday and Thursday, showed the median forecast of housing market analysts at banks, investment firms and research institutes is that there is a 78% chance that prices will fall on an annual basis at some point this year.

This is up from 65% in January and only 30% in October last year.

Forecasts for house prices in 2008 as a whole, among the 30 experts polled, range from a 10% tumble to a 3% rise.

The median forecast is for a relatively orderly market weakening with a nominal 0.8% fall in house prices this year and a further 2% drop in 2009.

That said, with benchmark annual UK consumer prices index inflation at 2.5% and expected to top 3% around mid-year, such nominal drops would represent a more significant fall in real terms.

The euro surged as high as 79.29p in the wake of Nationwide's house price figures yesterday morning and a survey overnight from private sector research organisation GfK NOP which showed UK consumer confidence had dropped to a 15-year low.

Both surveys pointed to an ever-more pressing need for the Bank of England's Monetary Policy Committee to cut UK base rates again, especially given the continuing rise in interbank lending rates.

The British Bankers' Association's London Interbank Offered Rate for three-month sterling rose yet again yesterday, from 6.00375% on Thursday to a fresh 2008 high of 6.00625%. This takes it even further above UK base rates of 5.25%.

The MPC has cut base rates twice so far this cycle, on December 6 and February 7.

Many economists now expect the MPC to cut again on April 10 because credit markets have taken another turn for the worse.

Indicators such as house prices and mortgage lending, and consumer confidence, are pointing to much tougher times ahead as the UK braces for the chill wind from a US economy which is either in, or on the brink of, recession.

In spite of a surge in the UK public's expectations of future inflation, a matter of concern to MPC members, Nationwide is among those which now expects the committee to "bring forward" the next cut in interest rates to April 10.

In spite of tumbling consumer sentiment and housing market troubles, John Lewis yesterday reported a 6.4% year-on-year jump in sales in its department stores business in the latest week to March 22. This followed two consecutive weeks of year-on-year falls from this retail sector star - drops which had fuelled worries about UK consumer resilience.

John Lewis's Aberdeen store led the charge in the week to March 22, showing an 18% year-on-year rise in sales. Comparing this Easter week with that in 2007, it said sales were up an even greater 7%.

Shares in housebuilders Persimmon and Barratt Developments fell 5% and 6% respectively yesterday amid the latest weak figures on the residential property market, having been strong on Thursday.

Ed Stansfield, property economist at Capital Economics, said Nationwide's latest survey left "hopes that the housing market is experiencing little more than a short-term wobble looking increasingly forlorn".

He added: "Recent falls in house prices look more and more like the start of an entrenched trend that could run through the rest of this year and next. Over the past three months, house prices have fallen by an average of 0.5% per month. If that rate of decline were to persist, house prices would end the year 5.8% lower than in December 2007. That suggests that our forecast of a 5% fall in average house prices this year, and a further 8% drop next, is well on track."

Stansfield claimed there was "a growing risk of a sharper and deeper adjustment".

He said: "House price falls to date have come despite the fact the economy has continued to perform relatively well. But, in our view, a sharp slowdown and a rise in unemployment is imminent. (And) the credit squeeze seems to be intensifying."

HBOS, Lloyds TSB, and Nationwide have hiked rates on main mortgage products this week, adding to a stream of lenders pushing through rises.

The housing market is so far proving more resilient in Scotland than in many other parts of the UK.