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Central banks warned about complacency

A meeting of global leaders in Toronto has seen the emergence of a strongly worded warning to worldwide governments reminding them of the need to slash budgets and a future need to move base rates higher sooner or later. This warning is also aimed at central banks which are effectively independent operators who monitor local and global economies. So what does this warning mean?

There is no doubt that austerity measures need to be taken across the globe to reduce budget deficits, stabilise national debt and also bring into line expenditure against income. However, as more and more governments around the world do look to slash their budgets there will come a point where central banks will need to increase base rates to ensure the threat of inflation is controlled and does not interfere with global economic recovery.

The two elements of the warning are very much poles apart but they are both specific and potentially enormous risks to not only local economies but the global economy. If there is complacency on either side, i.e. reducing budgets or increasing base rates, this will interfere with the local and global economic recovery and could put the worldwide economy back into a downward spiral.

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