The stronger-than-expected retail sales data for August suggest that, boosted by rapid wealth gains and falling energy prices, consumers continue to spend freely despite the labour market slowdown. With control group sales maintaining strong upward momentum, our forecast points to an acceleration in consumption growth in the third quarter. Although it will be a close call, and financial markets are still pricing in around a 65% chance of a 50bp interest rate cut from the Fed tomorrow, we still think that the broader data are more consistent with a 25bp step.
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