Such a move would fly in the face of Britain's received wisdom, which holds that the pound's strength is threatening the viability of foreign motor manufacturers in the country by eroding competitiveness. Nihon Keizai said the decision was based on the pound not appreciating as much against the yen as it has against the euro. A spokesman for Honda UK branded the report "pure speculation", noting that Honda would launch four-door and five-door versions of the Civic in September.

Industry sources have said a new three-door version is also on the cards. "We are announcing our plans for a brand new range on September 13," he said, adding that the announcement could include production plans. He said Honda remained firmly committed to its operations at Swindon in southwest England, where it is currently building an additional factory. The Civic report comes at a time when investment in Britain by car companies is a particularly sensitive issue after Ford Motor Co shut down assembly at its biggest UK plant and BMW AG sold loss-making Rover to the Phoenix Consortium. Honda in Japan was closed for the summer holidays and officials were unavailable for comment.

The company announced in May, however, that it planned to begin exports from Britain as a measure to increase output levels, having been hit by a fall-off in revenue from the continent because of the weakness of the euro. Honda officials have said that although the pound's strength against the euro is a major headache, the euro's weakness against the yen is much more painful. A stronger yen shrinks the yen-based value of income earned overseas. Its European operations - accounting for 11 per cent of group sales - showed a 14.5 billion yen loss in the year that ended on March 31.

Honda officials also said in May it expects another year in the red for the division, adding that they would try and take steps so that the losses did not grow. Analysts say the move would also make sense given that Honda is running near full capacity in Japan on the back of the popularity of its Odyssey minivan and its Life minivehicle. They, however, dismissed some reports that Honda would switch all its Civic production to Britain as a misinterpretation of the Nihon Keizai newspaper article.