GBP: Queen’s speech and Q1 GDP the focus

Wednesday's Queen's Speech will provide important policy guidance on fiscal consolidation and institutional risks. A tighter fiscal policy will result in a more moderate pace of GBP outperformance versus the EUR over the coming year. An EU referendum and Scottish independence remain important institutional risks for GBP. 

Although there has been increasing media commentary (Financial Times, 17 May 2015) that a referendum may occur earlier, the likely date remains highly uncertain and there is little premium built into longer-dated GBP options. For those that still retain some faith in the predictive power of polling after the general election, the latest YouGov poll shows only 35% of respondents want to leave the EU versus 45% that want to stay.

"We and consensus expect the second read of Q1 GDP growth (Thursday) to be revised up to 0.4% from 0.3% q/q, driven by positive contributions from domestic consumption and investment (+0.3pp each)",says Barclays

In particular, after posting a negative print in Q4, business investment is expected to grow again. Negative contributions are expected from net trade following a strong positive contribution in Q4.