Reuters May 13 - Sterling fell on Wednesday and was on

track for its first weekly decline in six weeks, with market

participants assessing political developments in Britain as

Prime Minister Keir Starmer resisted calls to resign.

The pound was last 0.2% lower against a broadly stronger

dollar at $1.351.

Fighting for his political life after dozens of his

lawmakers called for him to quit, Starmer promised on Wednesday

to press ahead with plans to reform Britain and warned of chaos

if he were to be ousted.

"The UK now looks set for a summer of severe political

uncertainty," said Kallum Pickering, chief economist at Peel

Hunt, in a note. "Against the already inflationary backdrop of

the Iran war, gilt markets will remain especially skittish and

equity markets may struggle to make gains short of an (unlikely)

quick resolution on the domestic political front."

Against the euro, sterling rose 0.1% to 86.59.

Moves are more muted than in the previous session, when the

pound shed 0.5% against the dollar in its biggest daily drop in

nearly six weeks.

"Maybe now that he's saying he's going to stay on, that is -

in the short term - calming markets a little bit," said Tommy

von Brömsen, FX strategist at Handelsbanken in Stockholm.

Moves have been more pronounced on the gilt market, but

British government bonds clawed back some ground on Wednesday

after being roiled in recent weeks by investor jitters around

the potential for more spending if Labour gets a new leader.

"But I think the bigger worry is that, not only are we

seeing near-term volatility in gilt markets and in sterling, but

also that this episode is another nail in the coffin for deep

structural concerns about the UK's ability to find leaders who

can come up with a credible plan to fix the country's finances

and deliver growth," wrote Neil Wilson, Saxo's UK investor

strategist.

Traders are betting on a 50% chance of no change at the Bank

of England's (BoE) next meeting on June 18.

Last month, the BoE kept interest rates on hold and set out

scenarios for the economic impact of the U.S.-Israeli war on

Iran, one of which could require a "forceful" increase in

borrowing costs.