Sterling drops as markets watch UK politics, PM Starmer's future

May 12 (Reuters) - ​Sterling ⁠slid against the dollar ​and the euro on Tuesday as markets kept a ​close ‌watch on political developments, amid growing concern that ⁠British Prime Minister Keir Starmer could ⁠step down. Starmer was ​consulting colleagues about whether he can stay on as prime minister on Tuesday ahead of ​a ‌crunch cabinet meeting that comes after ministerial aides quit and almost 80 lawmakers publicly called for him to go. Sterling was down ​0.45% at $1.3550, after rising over 0.5% on Friday ‌last week when Starmer vowed to stay in office after ‌his ruling Labour Party suffered heavy losses in local elections. It hit $1.3658 last week, its highest ​level since February 16.

The pound was down 0.17% at ‌86.72 pence versus the euro, its lowest since April 28.

Investors have been concerned that if ⁠Starmer ⁠is forced out, he would be ‌replaced by a more left-leaning Labour leader, who might ​increase ​public borrowing, which would put ‌even more pressure on Britain's already fragile finances and hit bond and currency markets. (Reporting by Stefano Rebaudo; Editing by Amanda Cooper)