Sterling edged up against a trade-weighted basket of currencies on Monday, but was still set to finish 2007 with its biggest annual fall in over a decade thanks to expectations of lower UK interest rates.

The Bank of England's nine policymakers were unanimous in cutting rates by 25 basis points to 5.50 percent earlier this month and data since then - including signs of easing house price inflation - have reinforced expectations of further monetary easing in 2008.

Some are even forecasting a cut from the BoE as soon as next week.

"The main reason for sterling's weakness this year is the fact that prospects for the UK economy have deteriorated relative to the euro zone," said Paul Robinson, currency strategist at Barclays Capital.

"Before year-end everyone is just squaring their books ... Longer-term we think sterling's got worse to come, especially against the dollar. We see it going down to low $1.90s in 2008," he said.

On the BoE's trade-weighted basis, the pound opened at 97.80, matching Friday's 1-1/2 year low and down more than six percent for the year.

By 0817 GMT, the euro was down 0.2 percent at 73.63 pence as investors took some profits on its rally to a record high of 73.89 pence on Friday.

Versus the dollar, sterling edged up to $1.9957 but looked set to end the year below the psychologically key $2 mark and more than 10 cents below 26-year peaks scaled in early November.

Britain is closed for New Year's Day public holiday on Tuesday. Later in the week, the market will look to Purchasing Managers' Indices on Britain's manufacturing and services sectors, as well as data on house prices and consumer credit.