UK Prime Minister Keir Starmer faces mounting political pressure following the resignation of his close ally Morgan McSweeney, his former chief of staff. McSweeney stepped down after his involvement in the controversial appointment of Peter Mandelson as UK ambassador to the United States came under scrutiny. The appointment is now subject to further official review, raising questions about Starmer's judgment.

The political turmoil comes ahead of critical electoral tests, with a by-election scheduled for late February and local elections in May. ING analysts warn that this uncertainty is weighing on both the pound sterling and UK government bonds (Gilts). Markets are speculating about potential leadership changes at 10 and 11 Downing Street, with the Bank of England's dovish stance last week adding to the currency's weakness.

ING analysts see the pound initially targeting the 0.8740/45 level, with potential to reach 0.8800 if speculation grows that Starmer might step down. The combination of political instability and monetary policy uncertainty creates a challenging environment for UK assets, as investors reassess the country's economic and political trajectory.