This analysis is concerned primarily with the second quarter of 1965 but some developments in the third quarter are discussed briefly at the end. The general method of approach is to look first at the various sectors' financial surpluses or deficits as derived from the national income accounts; and then to compare these with the information about the sectors' transactions in financial assets which is available from the various series of financial statistics. Because seasonal movements cannot, as yet. be isolated in most of these statistics, changes in the second quarter are mostly compared with those in the same period of 1964. The sectors are: persons (including unincorporated businesses); industrial and commercial companies; public sector; overseas sector; banks; and other financial institutions.