Sterling climbed to $1.347 after Andy Burnham officially became the UK's Prime Minister on Monday, accepting King Charles III's invitation to form a government.

Burnham, who stood unopposed in the Labour leadership contest following Keir Starmer's resignation, becomes the UK's seventh prime minister in the past decade and the second since Labour returned to power in 2024.

Markets are now focused on Burnham's choice of Chancellor.

Reports that Shabana Mahmood is the leading candidate have reassured investors, easing concerns that the new government could adopt a more expansionary fiscal stance.

Meanwhile, escalating tensions in the Middle East have pushed oil prices to their highest level in over a month, adding to inflationary pressures and reinforcing expectations that the Bank of England will keep interest rates higher for longer.