British Pound rebounds against Japanese Yen as UK growth beats expectations

GBP/JPY rebounds sharply on Wednesday as the British Pound (GBP) strengthens across the board following an upward revision to UK economic growth. At the time of writing, the cross trades around 208.65 after recovering from 206.89 earlier in Asian trading hours, the lowest since December 2025. However, the upside may remain limited in the near term, with intervention warnings from Japanese officials keeping the Japanese Yen’s (JPY) losses in check.

Data released by the Office for National Statistics showed that the UK economy expanded by 0.5% quarter-on-quarter in the second quarter, above the preliminary estimate and market expectation of 0.4%. On an annual basis, Gross Domestic Product (GDP) grew by 1.4%, also exceeding the earlier estimate and consensus forecast of 1.2%.

The stronger growth figures give the Bank of England (BoE) more room to focus on bringing inflation sustainably back to its 2% target, reinforcing expectations that the central bank could raise interest rates later this year. According to LSEG data cited by Reuters, traders are pricing in around 33 basis points of rate increases by year-end and more than 100 basis points by the end of 2027.

Pound support from stronger UK data faces test from Autumn Budget and BoE repricing risks

Strategists at BBH note that the Pound “was boosted by an upward revision to UK Q2 real GDP growth." However, they stress that “attention now turns to the October 28 Autumn Budget, which looks set to bring tax rises and spending cuts as Chancellor John Healey seeks to build a solid fiscal ‘buffer against uncertainty.’”

BBH argues that such “tighter fiscal policy would reduce the need for the BoE to deliver the 100bps of rate hikes priced over the next twelve months, and leaves GBP vulnerable to a dovish BoE repricing.” In contrast to the focus on fiscal strategy, they point out that “UK financial markets barely reacted to Prime Minister Andy Burnham’s speech yesterday,” as “his speech focused on his long-term policy agenda ahead of the next general election, due by 2029, instead of a blueprint for immediate policy action.”

On the Japanese side, fresh data released on Wednesday showed that Retail Trade grew 2.7% YoY in August, below the 3.3% forecast and slowing from the previous month's 3.7% increase. Retail sales fell 1.2% on a seasonally adjusted monthly basis, reversing the 2.1% rise recorded in July, while Large Retailer Sales growth eased to 1.0% from 1.4%. Traders now await Tokyo Consumer Price Index (CPI) and the Unemployment Rate, due on Friday.