MUFG Research discusses the latest UK political developments and sees a scope for further GBP weakness in the near-term.

"The pound is the second worst performing G10 currency this week underlining the underperformance related to the upturn in political uncertainties. It was looking highly likely this time yesterday that PM Starmer was about to step down as prime minister but his refusal and his call-out to backbenchers for someone to challenge him has gone unanswered, suggesting, for now at least, that his tenure as PM can carry on," MUFG notes.

"This political turmoil is happening at the worst time given the upturn in global inflation risks due to the conflict in the Middle East and with this uncertainty set to persist and potentially get worse, a period of renewed pound underperformance is the obvious conclusion. We were already assuming EUR/GBP would drift higher to 0.8850 by year-end but if this uncertainty persists and we do see new leadership and a shift left in policy, higher levels through 0.9000 is possible," MUFG adds.