Existing video data compression algorithms exploit the fact that the DCT coefficients in the neighbouring blocks are sometimes similar to those in the current block. This means that if the blocks contain completely different coefficients, for coding video data is disclosed in which element in a prediction matrix is set to an initial prediction value. In the prediction matrix, a smoothing transform is applied to the values along the rows and then along the columns, or vice versa, to obtain interpolated values. The prediction value is reset to the interpolated value and the difference between the reset prediction values and corresponding received pixel values is calculated to produce a residual prediction matrix containing the prediction residuals. A discrete cosine transform is performed on the prediction residuals to obtain elements of a compressed video data matrix. The processor means is preferably arranged iteratively to calculate the reset prediction value used to calculate the prediction residual by repeating steps b) and c).