A divided Bank of England

0:02Good morning from the Financial Times. Today is Friday, August 8th, and this is your FT News briefing. There might be a new face at the Federal Reserve soon, and the Bank of England had a tough time getting on the same page yesterday. Plus, U.S. President Donald Trump says he wants to put 100 % tariffs on semiconductor imports. But there is a major carve-out. I'm Mark Filippino, and here's the news you need to start your day.

0:39U.S. President Donald Trump nominated a new governor to the Federal Reserve yesterday. Stephen Myron is chair of the Council of Economic Advisors. He'll get to vote on interest rate decisions, and he's probably going to support Trump's calls for aggressive cuts. Myron is set to take the seat that's being vacated by Adriana Kugler. Her term was set to end in January, but she's leaving the Fed today. Once Myron's term is up next year, Trump is expected to use that seat to nominate a replacement for Chair Jay Powell. The president has repeatedly put pressure on Powell to cut rates more quickly, but due to sticky inflation, the Fed has continued to take a cautious approach.

1:26The Bank of England lowered interest rates by a quarter point yesterday. They've done that five times since last August. But something unprecedented happened this time. The Bank of England had to take a second vote. That's because the Monetary Policy Committee was so split, it couldn't reach a majority verdict on the first vote. Here to tell us more is the FT's economics commentator, Chris Giles. Hi, Chris. Hey, Monk. So, Chris, before we get into the internal politics of the BOE, I think it's important to start by outlining what is going on with the UK economy, because it's a confusing time, right?

2:03Well, the UK economy is in a bit of a sticky situation at the moment, because inflation's been rising this year, and it's over 3.5 % at the moment, when the target is 2%, and yet the economy is weak. So there's a little dose of stagflation that the Bank of England is having to deal with. Yeah, and how is the Bank of England dealing with it? I mean, What happened yesterday that caused this split? Well, on one level, it was extraordinary because there's never been a need to have two votes in any Bank of England meeting since the Monetary Policy Committee became independent in 1997. It was just that one of the people favoring a cut wanted to have a big cut, a jumbo cut of half a percentage point.

2:48So you had four people voting to hold rates, four people voting for a quarter of a percentage point cut and one person voting for a half percentage point cut. And in the rules of the Bank of England's voting, that meant that you had to take a second vote and he changed his vote to be voting for a quarter point. And so it went 5-4, a very close vote indeed. Chris, do me a favor, lay out both arguments for me. First, why would some members want to cut rates even with inflation on the higher side? I think it's for a couple of reasons. So first of on the inflation side, the feeling is that the current level of interest rates at what was 4.25%, but now 4%, is still restrictive.

3:33So it was doing a job in getting inflation down. And they think inflation is temporary, and the economy is also weak at the same time. And so underlying, when you strip out everything, they think the disinflationary process is still going on. Although, judging by how close the vote was, they are less sure about that than they were three months ago. Okay, based on what you said, I kind of have a sense of why some members of the BOE might want to keep rates steady, but what's their perspective? The argument for keeping rates steady is that the performance on inflation has been not great in the last couple of months.

4:10And And so the four people who voted to keep rates steady said, we need to see more progress on inflation, on underlying inflation, before we can cut rates again. Zooming out a bit, we're starting to see some more split votes in central banks, right? So we saw in the Federal Reserve, there were two central bank governors that kept voting to cut rates, while the others wanted to keep them steady. The BOE, obviously, yesterday's scenario was unprecedented. What does this all tell you about the state of Western economies and monetary policy right now? I think the key thing it tells you is it's very hard for monetary policy to deal with supply shocks, whether they are tariffs or food price inflation, which is rising globally.

4:58So there are forces that are suggesting that rates should go up or not be cut. And there are forces, weaknesses in the economy suggesting rates should be cut. And it's perfectly reasonable for people to disagree how much weight they put on those two forces. And so if a committee of wise people was entirely unanimous saying there's obviously only one thing to do, you'd have to think it's slightly rigged. So I think we're in a period where if you don't see split votes, I think that may suggest that a committee isn't really honestly reflecting the uncertainties that really do exist out in the real world.

5:40Chris Giles is the FT's economics commentator. He writes a great weekly newsletter on central banks. We'll have a link to that in the show notes. Thanks, Chris. Thanks, Mark.

5:56Europe's weapons factories are expanding at three times the rate of peacetime. That's according to an FT analysis. Building activity at European armed sites has majorly picked up since Russia's full-scale invasion of Ukraine in 2022. And the push to build more weapons has become incredibly important this year, especially since the U.S. has threatened to pull back its support from the European Union. This shows that Europe's promise to rearm itself isn't just talk. It's actually materializing. And it comes as EU governments are arguing over how they can sustain arms deliveries to Kiev, as well as rebuild their own stockpiles.

6:40Chips are the latest target in U.S. President Donald Trump's trade war. Earlier this week, he threatened a 100 % tariff on semiconductor imports. But Apple got a carve-out because of its planned U.S. investments, and it looks like the door is open for other companies to get one too. Here to explain the impact on the chip industry is the FT's Michael Acton. He covers Apple, NVIDIA, and the semiconductor industry. Hey, Michael. Hey. So tell me about these tariff threats. What did Trump say about why he's doing this? Well, really, the context of this is that the administration's been looking at potential tariffs on chips and the electronics that contain them since the springtime.

7:20So these products basically got carved out of all the reciprocal tariffs. And Trump appeared to give a glimpse into the way they're thinking. And it's really a quid pro quo about if you don't show sufficient commitment to building American manufacturing, then you're going to get hit by tariffs. And Apple showed that it's ready to make that commitment. Exactly. It seems that Apple has managed to convince Trump who, if we go back a few weeks, Trump was threatening 25 % tariffs on the iPhone. If Apple didn't build the iPhone in the US, there's all sorts of reasons that that's massively impractical for Apple.

7:55It would be a huge hit to their margins. And so what Apple's done is it's basically thrown another$100 billion at the problem and said that it's going to sort of double down on its commitment to US manufacturers, which are building certain components that go into the iPhone. That seems to have been enough to convince Trump that Apple won't be building the iPhone or assembling the iPhone in the US anytime soon, but it does make a meaningful contribution to U.S. manufacturing. Okay, so it sounds like Apple is probably feeling pretty good about all this, but what kind of impact will these tariffs, if they do come to fruition, and we should say that they have not yet, what kind of impact would they have on other major chip companies like NVIDIA or the Taiwan Semiconductor Manufacturing Company, TSMC?

8:37So the knock-on effect for other chip companies is anyone who has essentially announced a major investment projects in the US, whether that's NVIDIA, whether that's TSMC, whether that's South Korea's SK Hynix or Samsung, the mood around Trump's announcement seems to be relatively upbeat. But if you haven't made a large investment in the US and you haven't convinced the administration directly that you are contributing to this broader plan to rebuild American manufacturing, then you're really very much in the dark and relying on companies like Apple to basically represent the broader industry when it goes into the room with Trump.

9:11Michael, investors seem to react to this tariff announcement pretty positively. NVIDIA's share price was up. TSMC's shares ended the day up nearly 5%. I did notice, though, that U.S.-based Intel ended the day down a little more than 3%. What was going on there? So the story around Intel has been pretty downbeat for a while now. Their ambition is to really compete with TSMC to be essentially the only U.S. company that builds the most advanced ships in the world. Things are looking really dire for them. And they had a new CEO who came in earlier this year. The day after Trump announced this tariff plan, he sort of randomly attacked the new CEO, Lip Boutin, saying that he had a conflict of interest, presumably because of his links to investment in the Chinese semiconductor space in his past life as an investor.

10:04And also, I think there's an awareness that if Intel goes down, if Intel's foundries don't manage to win customers, and they've said this openly, that they will essentially give up on being a leading edge chip manufacturer. And that would be a real signal moment if we're talking about the importance of building a US semiconductor manufacturing base. Even if TSMC is building fabs in Arizona at a healthy pace. It's still a Taiwanese company based in Taiwan. There is no U.S. company that works in that space other than Intel. And it's a really interesting sort of side plot to this whole narrative around tariffs and chips.

10:45So, Michael, I know things are a little too early to say, but what does this all mean for chip production in the U.S.? Chip production in the U.S. is a sort of long-term policy goal that stretches across multiple administrations and it goes back to the CHIPS Act in 2022. If you think of the CHIPS Act as the carrot, it was subsidies and tax breaks for companies that build here, then tariffs are the stick. The question of whether tariffs can actually meaningfully shift perhaps the most globalized supply chain to the U.S. is worth questioning. Tariffs are not traditionally used in this manner to rebuild a manufacturing base.

11:18So it's really an experiment for the U.S. right now. Michael Acton covers Apple and the semiconductor industry for the FT in San Francisco. Thanks, Michael. Thanks.

11:34You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back next week for the latest business news. The FT News Briefing is produced by Sonia Hudson, Jess Smith, Fiona Simon, Ethan Plotkin, Josh Gabber-Doyon, and me, Mark Filippino. I want to give a shout out to our intern, Michaela Sia. This is her last week at the Financial Times. Michaela, thank you so much for everything you did here and for your excellent headline writing skills. You will be missed. We had help this week from Michael Lello, Peter Barber, David Da Silva, and Gavin Coleman.

12:05Engineering support from Blake Maples, Kelly Gary, Kent Militzer, and Sam Giovinco. The FT's acting co-head of audio is Topher Forges, and our theme song is by Metaphor Music.

12:52the RBC Capital Markets Podcast explores how corporates and investors are navigating new pathways to raise capital, create value, and drive growth. When conditions change, alternatives matter. Listen to Strategic Alternatives, available wherever you get your podcasts. Looking for more investing options? Meet SIBO, the exchange that pioneered options trading. With exclusive trading products like VIX and SPX options, SIBO can help you trade in any market environment. There are risks associated with SIBO company products. Review the disclosures and disclaimers at sebo.com slash US underscore disclaimers.