Bank of England's rate hikes are set to continue, bolstering the British Pound, according to economists at Goldman Sachs.

Concerns regarding aggressive rate hikes weakening the currency are unwarranted

We predict that the BoE will raise rates by another 50 basis points in August, based on supportive data. This is expected to provide additional support to the GBP.

Contrasting with the situation last autumn, both inflation and economic activity data are now indicating an upward trend. This means that the BoE faces less of a dilemma in balancing between rate hikes and supporting economic activity.

We are skeptical regarding the notion that aggressive rate increases might weaken the Pound by affecting growth. We believe that as long as the BoE is committed to higher real rates, the GBP will remain supported, even though other domestic assets such as house prices and equities might take a hit.