TD Securities argues the ONS may be mis-measuring the seasonal pattern in UK GDP, making early-year growth look stronger than it is and second-half activity weaker, without changing annual growth overall. The note says the UK outpaced the rest of the G10 in 2025H1 and is again leading the 2026Q1 releases so far, but points to a recurring profile in both quarterly and monthly data in which output surges in H1 and then flat-lines in H2. The ONS has published analysis defending its methods.
Using a “double-seasonal adjustment” approach based on work by the San Francisco Fed, TD re-seasonally adjusts the already seasonally adjusted series to detect repeating distortions. It finds that, since 2023, the official seasonally adjusted GDP series has been more volatile than the double-adjusted measure and that there is an upward bias in Q1 and Q2, while Q3 and Q4 are understated. On that basis, reported Q1 growth of 0.6% q/q could be overstated by as much as 0.25ppt, implying Q3 and Q4 growth could be understated by up to 0.2ppt each.
Questioning The Strength Of Reported UK Growth
We believe the recent strength shown in UK GDP figures is misleading. The official data appears to have a recurring issue of overstating growth in the first half of the year, meaning the economy’s true momentum is likely weaker than the reported 0.6% for Q1 2026. This view challenges the current market narrative which has been celebrating a robust UK economic rebound.
This skepticism is supported by recent inflation figures, which at 2.1% for April 2026 were slightly below consensus forecasts and hint that the economy is not overheating. While the Bank of England remains focused on wage growth, which is still running above 4%, the potential overstatement in GDP gives them more justification to delay further rate hikes. We see the market’s current pricing for a rate hike in the third quarter as overly confident.
Therefore, in the coming weeks, we will be looking closely at interest rate derivatives, particularly SONIA futures contracts for late 2026. The current curve seems to have fully priced in the strong, but likely flawed, Q1 growth data. This presents an opportunity to position for a more cautious Bank of England than the market currently expects.
Market Implications And Positioning
This reassessment of UK growth should put downward pressure on the British Pound. Sterling’s rally against the US dollar to the 1.28 level in April was built partly on this questionable growth story. We are considering buying GBP/USD put options with late July expiries as a way to profit from a potential slide back towards the 1.25 range.
Looking further out, this same seasonal distortion implies that growth in the second half of the year will be understated. Historically, similar data quirks, like those seen in US GDP around 2015, have led to significant market repricing once corrected. We will therefore look for opportunities later this summer to position for surprisingly strong Q3 and Q4 data, which could fuel a hawkish turn from the Bank of England into year-end.
