Stronger data keeps August hike on the cards

Economic growth of 0.4% or so in Q2 – as suggested by the latest business surveys – would normally be pretty respectable. But coming after Q1’s snow-related slowdown, it looks a little soft. What’s more, if growth has been boosted by some “catch-up” after the snow, then the economy might not carry even this lacklustre pace into the second half of 2018. Nonetheless, there have been a number of developments over the past month that have indicated that the fundamental drivers of economic growth have improved. After all, sustained rises in real pay now appear to be in prospect. And we don’t see why the manufacturing sector shouldn’t continue to provide welcome support to GDP growth this year. As such, although the near-term interest rate outlook still looks finely balanced, our feeling is that the chances of an August hike remain a bit above 50%.