Can UK deliver conducive growth numbers to free BoE from easing pressures and prop up GBP:

Last week, Bank of England (BoE) maintained the bank rate unchanged at 0.50% and the stock of purchased assets at GBP375bn in April.

Minutes from the monetary policy meeting noticeably indicated that BoE would stand pat ahead of the UK’s EU in/out referendum. In the event of Brexit, economic uncertainty should increase and the UK is likely to fall into a recession in H2 16.

This is likely to force the BoE to ease monetary policy and in this scenario we think the BoE would prefer to increase its APF programme by buying more assets in order to stimulate the economy, rather than cutting rates.

The final release of the Q4 GDP figures was revised slightly higher from an initial growth rate of 0.5% QoQ to 0.6% QoQ (2.1% YoY) in Q4.

It is likely that both GDP growth and employment growth will slow in H1 16 as uncertainties attached to the EU referendum could hamper investment and private consumption.

UK CPI inflation surprised on the upside in March, increasing to 0.5% YoY from 0.3% YoY  in February. However, UK economic data will generally attract less attention and is unlikely to cause a major market reaction in the coming months due to increased uncertainty ahead of the referendum.

The upcoming EU referendum represents a significant event risk to GBP, and poses a medium- to long-term risk. We target EUR/GBP at 0.80 in 1M, 0.76 in 3M, 0.74 in 6M and 0.75 in 12M.

Given the considerable binary risks related to the EU referendum we recommend GBP receivables via options. As an alternative to put options, contemplate a boosted risk reversal strategy.