|

United Kingdom: Seasonal distortions question growth lead – TD Securities

TD Securities’ James Rossiter argues that recent UK GDP data may overstate underlying momentum due to problematic seasonal adjustment by the ONS. Using a double-seasonal adjustment approach inspired by the San Francisco Fed, he finds Q1 and Q2 growth inflated and H2 understated, implying 2026 Q1 GDP could be around 0.25ppt lower and later quarters stronger than reported.

Questioning strength in UK growth data

"UK GDP growth out-paced the rest of the G10 in 2025H1, and is again top of the charts for 2026Q1 data released so far."

"But speculation has risen that there is a growing issue with the ONS' seasonal factors in recent years, resulting in an over-stating of H1 GDP growth and an under-stating in H2 growth (seasonal factors don't affect the year as a whole). This can be seen both in the pattern of quarterly growth rates and in the monthly GDP data, which seems to surge in H1 and flat-line in H2 (see 1st and 2nd charts). The ONS has issued an analysis defending its methodologies."

"We take the approach the SanFran Fed used a decade ago on US GDP data to double-seasonally adjust the data, in essence seasonally adjusting the ONS' already seasonally adjusted data to look for repeating patterns. Since 2023, the ONS' seasonally-adjusted GDP series has been more volatile than our double-seasonally adjusted GDP (3rd chart)."

"Double-seasonally adjusting the data yields statistically significant results, and shows increasing positive bias in UK Q1 and Q2 GDP growth estimates, while the Q3 and Q4 growth figures are under-stated (4th chart)."

"Our evidence suggests that reported Q1 GDP growth of 0.6% q/q might be overstated by as much as 0.25ppt. Of course, that means that second half growth might be understated by as much as 0.2ppt in each of Q3 and Q4 this year if seasonal factors aren't adjusted."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

GBP/USD surrenders some gains, back to 1.3420

GBP/USD holds on to moderate gains above 1.3400 the figure on Friday. Optimism surrounding the UK government’s leadership transition and expectations of further BoE tightening support the British Pound, while easing tensions in the Middle East and fading Fed rate-hike expectations weigh on the US Dollar.

EUR/USD turns positive, targets 1.1450

EUR/USD now picks up pace and advances toward the 1.1440 region on Friday, up modestly for the day. With no major economic data due, lingering uncertainty over the US-Iran conflict keeps investors cautious, limiting the pair's upside.

Gold remains offered, still below $4,100

Gold struggles to extend Thursday’s rebound and navigates below the $4,100 mark per troy ounce on Friday. Uncertainty surrounding the Middle East conflict limits the precious metal’s upside, which is also under pressure amid rising US Treasury yields across the curve.

Week ahead – US CPI and Warsh testimony to take centre stage, BoC eyed too

US inflation report and Warsh testimony to headline the week. Dollar to dominate amid slew of other US data and Mideast tensions. Amid fresh Iran escalation, China GDP to shed light on Q2 impact. Bank of Canada not expected to follow RBNZ with rate hike.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June Federal Open Market Committee meeting landed mid-round-trip, describing a world that had already stopped existing.

Five sessions, one round trip: Why the whipsaw is exactly what Warsh ordered

Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June FOMC meeting landed mid-round-trip, describing a world that had already stopped existing.