contentious situation at the Bank of England
The Bank of England (BoE) took an unprecedented step in August 2025, holding a second vote on interest rates due to a split within the Monetary Policy Committee (MPC). This rare occurrence underscores the delicate balance the BoE faces between tackling sticky inflation and responding to an economy showing signs of softening [1][2][4].
The initial vote resulted in a deadlock of 4–4, with one member advocating for a half percentage point cut and the others favouring either no change or a quarter point cut. In the second round of voting, the member who initially pushed for a larger cut changed their vote, resulting in a narrow 5–4 majority in favour of a 0.25 percentage point cut, lowering the rates to 4% [1][2][3].
The divide within the MPC stemmed from significant disagreement about how to manage competing economic pressures. On one hand, rising inflation, expected to peak at around 4% in September, posed a concern. On the other hand, signs of weakening growth and labor market strain, including a four-year high in unemployment and slower wage growth, needed attention [1][2][4].
The UK economy is currently experiencing a period of stagflation, with inflation over 3.5% and the economy weak [5]. This situation has become more complex due to the US's threat to pull back its support from the European Union, making the push to build more weapons increasingly important [6].
Meanwhile, across the Atlantic, the US is also grappling with economic challenges. The US President, Donald Trump, has nominated Stephen Miran, the chair of the Council of Economic Advisers, as a new governor to the Federal Reserve. Miran is expected to support Trump's calls for aggressive cuts [7].
Trump's administration is also considering potential tariffs on chips and electronics to contain them and serve as a quid pro quo for showing sufficient commitment to building American manufacturing. The Chips Act of 2022 offers subsidies and tax breaks for companies that build in the US, while tariffs serve as a stick to encourage chip production in the US [8].
However, the question of whether tariffs can meaningfully shift the most globalized supply chain to the US is worth questioning. Tariffs are not traditionally used in this manner to rebuild a manufacturing base [9]. Companies that fail to make a large investment in the US and convince the administration of their contributions to rebuilding American manufacturing may be subject to tariffs [10].
The race to build advanced chips is intensifying, with Intel aiming to compete with TSMC to be the only US company that builds the most advanced chips in the world. However, things are looking dire for Intel [11]. If Intel goes down, it would be a real signal moment for the importance of building a US semiconductor manufacturing base [12].
As for Adriana Kugler, whose term was set to end in January, she is leaving the Fed today [13]. Trump is expected to use the seat vacated by Kugler to nominate a replacement for chair Jay Powell next year [14].
References:
- BBC News
- Financial Times
- Reuters
- City A.M.
- The Guardian
- The Economist
- CNBC
- Politico
- The Diplomat
- Axios
- Bloomberg
- Reuters
- CNBC
- The Hill
- Central banks, such as the Bank of England and the Federal Reserve, are facing challenging economic circumstances, with inflation, softening economies, and competition for investments being significant factors.
- In August 2025, the Bank of England's Monetary Policy Committee split over interest rate decisions due to disagreements about managing competing economic pressures, including inflation and weakening growth.
- The US President, Donald Trump, is seeking to rebuild American manufacturing by implementing tariffs on chips and electronics, while also supporting aggressive interest rate cuts and appointing governors to the Federal Reserve who share this stance.
- Technological advancements in semiconductor manufacturing, such as the competition between Intel and TSMC, are key business developments in the global economy, with the outcome having potential implications for national economies and central bank policies.
