Statistics Canada said on Tuesday that GDP grew by 0.5% in May, the biggest increase in a year, as industries recovered from bad weather and maintenance shutdowns.

The central bank, which says it will reduce stimulus as the economy strengthens, raised interest rates for the fourth time in a year on July 11 and signaled more hikes to come. Its next fixed date for a rate announcement is on September 5.

In our opinion second quarter growth was likely to come in at 3.0% on an annualized basis, above the Bank of Canada's 2.8% forecast. But we doubt that May's solid gain will cause the Bank of Canada to seriously consider another interest rate rise as soon as September.

The retail sector expanded by 2.0% while construction posted a 0.7% gain. The oil and gas extraction sub-sector rose 2.5% on increased crude bitumen exploitation.

The only one of the 20 major industries to sink was the utilities sector, which shrank by 2.4% on lower demand for electric power generation, transmission and distribution as the weather improved.

Market expectations of an interest rate hike in September, as reflected in the overnight index swaps market, rose to 21.91% from 19.65% before the release.

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