Sterling edged up against a trade-weighted basket of currencies, but finished 2007 with its biggest annual fall in over a decade thanks to expectations of lower interest rates.

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

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.