Sterling eases against euro on central banks differentials

By Joice Alves

LONDON, Dec 2 (Reuters) - The pound fell against the euro on Tuesday after euro zone inflation cemented the view that the European Central Bank was done easing interest rates while the Bank of England is expected to cut in December.

The euro rose 0.1% against the pound to 87.96 pence after data showed inflation in the 20 nations sharing the currency accelerated to 2.2% last month from 2.1% in October, a small rise that is unlikely to be too concerning for the ECB.

Joshua Mahony, chief market analyst at Scope Markets, said the inflation data indicate that the ECB easing cycle is over.

"With the BoE expected to take over the mantle of most active central bank in Europe for the year ahead, it comes as no surprise to see EURGBP head higher," he said.

Investors were also bagging some profits on November's modest gains ahead of a widely expected BoE interest rate cut on December 18.

Sterling rose more than 1% last week against the dollar, marking its largest weekly gain since early August, lifted by a relief rally after finance minister Rachel Reeves' long-awaited budget soothed some concern about Britain's long-term finances.

The overall picture for the UK has also improved, the OECD said on Tuesday, with Britain's economy forecast to grow faster than previously expected next year.

Data also showed that British house prices rose slightly faster than expected in November, defying concerns about the impact of Reeves' budget, and higher wages were improving affordability, mortgage lender Nationwide said on Tuesday.

But, adding some pressure on sterling, money markets show traders are placing a 90% chance of a BoE cut later in December that would take the base rate to 3.75%.

The BoE also on Tuesday cut the amount of capital it estimates lenders need to hold, making its first reduction to bank capital demands since the 2007-08 global financial crisis in a bid to boost lending and stimulate the economy. The BoE also said the seven biggest lenders had passed stress tests.

The pound edged 0.08% lower against the dollar at $1.3201, after jumping to a one-month high on Monday.

(Reporting by Joice Alves; editing by Mark Heinrich)