British Pound holds firm as stronger UK economic data outweigh hawkish BoJ remarks

• GBP/JPY edges higher as stronger-than-expected UK economic data support the British Pound.
• Growing expectations of a BoE interest rate hike provide further support to Sterling.
• Hawkish BoJ comments offer limited relief to the Japanese Yen as structural headwinds persist.

GBP/JPY edges higher on Thursday as the British Pound (GBP) outperforms most of its major peers following stronger-than-expected UK economic data, while traders also assess central bank signals. At the time of writing, the cross trades around 209.36, up 0.23% on the day.

Data released by the Office for National Statistics (ONS) show that Gross Domestic Product (GDP) grew 0.1% in August, beating expectations for a 0.1% contraction, following a 0.4% increase in July. Industrial and Manufacturing Production also exceeded forecasts, rising 0.8% and 1.2%, respectively.

The stronger figures give the Bank of England (BoE) room to raise interest rates as inflation proves stickier than hoped. Expectations are building that the central bank could increase borrowing costs this year after keeping rates unchanged so far.

A Reuters poll published on Thursday showed that 54 of 63 economists expect a 25-basis-point hike in November to 4.00%. Inflation is forecast to average 3.6% in the fourth quarter of 2026, 3.8% in the first quarter of 2027 and 3.0% across 2027, up from September’s projections of 3.3%, 3.2% and 2.5%, respectively.

BoE Chief Economist Huw Pill said on Thursday that a rate hike would not necessarily mark the start of an extended tightening cycle. He nevertheless warned that persistent inflation pressures could require “a prolonged period of restriction.” Meanwhile, Governor Andrew Bailey said on Tuesday that the energy shock’s impact on broader inflation had so far been subdued, but cautioned, “the longer this goes on, the harder it gets.”

Meanwhile, hawkish Bank of Japan (BoJ) remarks provide little support to the Japanese Yen (JPY), which remains structurally weak due to Japan’s relatively low interest rates and concerns over its heavy government debt burden.

BoJ board member Junko Koeda said on Thursday that “underlying inflation has been about 2% over the past year or so.” She added that “with significant upside risks to prices and ongoing loose financial conditions, BOJ should not be too cautious about raising policy interest rates.”

Koeda also said the central bank “should adjust policy rate timely considering economic and price conditions, keeping estimated neutral rate range in mind,” while noting that attention remains focused on “price upside risks from Yen depreciation and robust global AI demand,” alongside the impact of the Middle East situation.