LONDON (Reuters) - The cost of hedging against swings in sterling’s value over the next week has jumped to its highest since last May’s UK election, before a summit where Prime Minister David Cameron seeks a deal to keep Britain in the EU.

A generic picture of a some British sterling money in coins and bank notes. REUTERS/Catherine Benson

Cameron will meet European Union leaders on Thursday for two days of talks which he hopes will produce more favorable terms for Britain’s membership. He has promised a referendum on the issue by the end of 2017 but investors reckon it could come as soon as June if he can claim victory at the summit.

Analysts say sterling could weaken dramatically if Britons vote to leave: Goldman Sachs has said it could fall as much as 15-20 percent, and ratings agency Standard & Poor’s has said a Brexit could hurt the pound’s role as a global reserve currency.

Options market pricing showed a jump in the cost of hedging against volatility in sterling's exchange rate to the dollar over the next seven days, covering the summit. One-week implied volatility rose to as much as 12.93 percent late on Friday GBPSWO=, its highest since May 8, the day after Britain's parliamentary elections.

On Monday the price of that option had eased a little, to around 11.5 percent, mainly due to a less volatile and jittery mood across markets.

Six-month implied sterling/dollar volatility, derived from options that cover the June date many market players are betting on for the referendum, has risen steadily this year and hit a four-year high of 11.75 percent on Thursday GBP6MO=.

“At the beginning of the year the market was only concerned with the EU referendum date, around the summer, but the market was not implying any risk premia toward this EU summit,” said ING currency strategist Petr Krpata.

“This is now changing with this massive risk event at the end of the week.”

Krpata said sterling would become increasingly sensitive to polls on voter intentions, which currently show the “in” and “out” camps neck-and-neck. However, global market upheavals could still be a more important driver for sterling’s volatility.

One-week implied volatility for euro/sterling EURGBPSWO= touched 14.4 percent late last week, its highest since June 2015, when Greece's debt crisis was raising questions about the euro's future.

Western Union’s head of corporate treasury sales, Tobias Davis, said volatility would remain elevated in the months up to the referendum even if Cameron claimed victory from the summit.

Sterling volatility “is kind of a one-way street,” he said. “This is still going to drag on; (the summit) is not going to be clean-cut, it’s not going to be binary. Volatility is not going anywhere.”