LONDON, Dec 12 (Reuters) - The pound struggled for direction on Tuesday after data showed British wage growth slowed in October but remained elevated, with investors focused on upcoming U.S. inflation figures.

Sterling was last up 0.07% at $1.2564, while the euro was up 0.19% at 85.9 pence.

The pound fell slightly after data showed that British earnings excluding bonuses were 7.3% higher than a year earlier in the three months to October, down from 7.8% in September. Economists expected a fall to 7.4%.

"Sterling has drifted a little lower in the aftermath of the softer-than-expected wage data," said Chris Turner, global head of markets at lender ING.

The Bank of England sets interest rates on Thursday and Turner said the data opened up "the risk that some of the three hawks who voted for a hike in November switch to favouring a hold now".

Economists and traders think the Bank will almost certainly hold interest rates at 5.25%. But they will be listening closely for hints about when borrowing costs might start to fall.

Investors on Tuesday were mainly focused on U.S. inflation data for November, due out at 1330 GMT (8.30 a.m. ET), which comes before the Federal Reserve's interest rate announcement on Wednesday.

The European Central Bank is due to set monetary policy on Thursday. Both institutions are expected to hold rates steady.

Sterling touched a three-month high of $1.2733 per dollar at the end of November as U.S. bond yields fell sharply on hopes the Fed will start cutting rates early next year. The euro fell to a three-month low against the pound on Monday at 85.5 pence.

Market players think the BoE is likely to hold rates a little longer than both the Fed and the ECB, raising the appeal of sterling.

Yet Ashley Webb, UK economist at Capital Economics, said Tuesday's wage data would likely boost bets that the BoE may cut rates "as soon as the middle of next year". He said the data "leaves our forecast for rate cuts to start late in 2024 looking a bit more challenging".

The dollar index, which tracks the greenback against six peers, was last down 0.18% at 103.87.

(Reporting by Harry Robertson; editing by Christina Fincher)