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AS GOOD AS IT GETS? MARKETS UK GDP SURPRISE

It's not the most exciting story out of the UK this morning.

But market watchers are reacting nonetheless to Thursday's UK GDP figures which surprised to the upside in March.

And behind the strong numbers they are flagging seasonal distortions, a gap between hard and soft data and risks stemming from the Iran conflict as indicators that this might be as good as it gets.

The data hit screens as economic woes fuel current voter discontent that has lit a fire under PM Keir Starmer's leadership and caused political turmoil in Britain.

But telling a different story, GDP increased 0.3% month-on-month in March, and by 0.6% on a quarterly basis.

The latter fits an emerging seasonal pattern flagged by MS economists, who in a note highlight that 2025, 2024 and even 2023 clocked strong first quarter GDP figures.

MS already wrote about their concerns around the ONS's seasonality adjustment processes last year. They also flag a gap between hard and soft data.

"...such a severe disconnect between the hard and the soft data, and the seasonal pattern we've seen for 4 years, do mean the leap in activity was probably not quite as sharp as the ONS suggests," writes Bruna Skarica, chief UK economist at the U.S. bank.

Kallum Pickering, chief economist at Peel Hunt, highlights a mismatch between the data and what's happening on the ground going into Q2.

"Despite the encouraging start to the year survey data, as well as anecdotes from businesses indicate that momentum has softened through the second quarter amid supply disruptions in energy markets linked to the Iran conflict," he wrote, flagging a murky UK housing survey published today.

Peel Hunt has cut its forecast for 2026 UK GDP to 0.8% from 1.3% at the start of the year with those risks in mind.

Another element providing "only a temporary boost" to GDP, according to Ruth Gregory, deputy chief UK economist, is stockpiling due to risks of shortages linked to the Iran war.

"This meant that industrial production fell by only 0.2% m/m despite a big 4.3% m/m fall in electricity/gas supply and a 2.3% m/m drop in mining activity," she wrote.

(Lucy Raitano)

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