Executive Summary
GBP/USD trades at 1.3212, down 3.5% over three months and below its 200-day MA (1.3343), as the Iran-US conflict (Operation Epic Fury, launched 28 February) has imposed a stagflationary shock on an economy already running 3.0% CPI, 3.2% core, and just 0.1% QoQ GDP growth. The BoE held unanimously at 3.75% on 19 March — the first 9-0 vote since September 2021 — abandoning its gradual easing guidance as Brent crude surged to $108-116/bbl and NBP gas doubled. UK 10Y gilt yields have breached 5.00% for the first time since 2008, widening the Gilt-Bund spread to 216bp and eroding the Chancellor's £24bn fiscal headroom. Our tactical stance is Bearish (Conviction 2): the BoE is trapped between re-accelerating inflation (heading toward 4% by summer) and stalling growth, gilt market stress is compounding fiscal fragility, and the oil shock is worsening UK terms of trade. However, GBP retains high carry in G10 (3.75%, 3rd highest), the current account has quietly narrowed to -1.1% of GDP (underlying), and CFTC asset managers are heavily short (-94,463 contracts) — creating asymmetric short-covering potential on any ceasefire. The April 30 MPR is the binary event: it will reveal whether the BoE treats the energy shock as transitory or structural.