The British economy inched higher to 0.5% on QoQ in the last three months of 2015, accelerating from a 0.4% growth in the previous quarter that is in line with market projections and preliminary estimations. Taking growth during entire 2015 into account, the GDP grew at 2.2%, lower than 2.9% in 2014.

Manufacturing segment in UK was the only positive print among PMIs, while service and construction missed the forecasts. Manufacturing PMI was flashed at 52.9 vs previous 52.1, construction PMI is at 55.0 vs 57.8 and service PMI has just crept up to 55.6 vs previous 55.5.  

December industrial and manufacturing output is the only UK's significant data of note this week (Wednesday). We project that IP would drop 0.5% MoM versus forecasts at -0.1% from previous -0.7% and manufacturing output at 0.1% MoM is forecasted versus previous -0.4%. As such, focus will remain on the impending UK referendum.

While the associated uncertainty is likely to lead to further GBP depreciation versus the USD, the EU referendum represents important risks to the stability of Europe, and we do not anticipate further GBP weakness versus the EUR.

Mr Cameron says the move will "make a difference" to high levels of immigration by reducing a "pull factor". But it will have to be agreed by member states, as part of a wider package of reforms to Britain's relationship with the EU, and will only apply for a temporary period as an "emergency brake".

We reckon the markets' recent focus on a higher EURGBP as an expression of referendum risk is misplaced (better expressed through GBPUSD and GBPJPY downside, for example), and we expect a correction should there be a positive outcome at the February EU Summit.

In the context of still-superior UK growth compared with the euro area, we maintain our view of GBP appreciation versus the EUR, as well as on a trade-weighted basis, over the coming year.

Allocating most of the risk upto June, but also making significant provisions for September, Given the richness in skews, GBP put spreads straddling the two potential dates are a straight-forward way to position for downwards pressure on GBP in the coming months.

The steepening in risk reversals are pushing RR/ATM ratios to levels that are usually associated with high beta and emerging currencies, especially in GBP/JPY, GBP/USD and GBP/CHF. We rank GBP put spreads in 5M to 9M expiries according to their max payout/cost ratios.

But, it is still bid for GBP calls vs the severely battered AUD and NZD, but all other skews have widened, and even flipped to negative for GBP/NOK, which is a rarity.

The combinations are sparkled for:

Net delta > 15% of notional to ensure a sizeable exposure to GBP weakening,

Discount to outright put > 55% and max payout/cost ratio above 3:1 to justify capping the upside of the trade as opposed to buying a vanilla put,

Static carry > -15% of premium in 2M, to minimize the cost of holding the position. 40D-25D put spreads uniformly screen as optimal spreads in view of these constraints and the targeted gearing, especially in GBP/JPY, GBP/CHF and GBP/USD.