After a very heavy outflow of funds in the third week of June, sterling was allowed as a temporary measure to float and the United Kingdom withdrew from the intervention arrangements of the European Economic Community. Thereafter the outflow was halted , but by the end of July sterling had effectively depreciated on average against other currencies by some 6¾% on the rates agreed in December 1971. This sudden pressure on sterling together with its causes and effects was one of the chief features of the three months May to July with which this Commentary is mainly concerned. It reflected growing anxiety about the prospects for the U.K. balance of payments. In fact, the balance on current account remained in moderate surplus in the second quarter. But the volume of exports had fallen and the volume of imports was growing; and the markets considered that this trend was likely to continue as domestic demand and output grew, and that inflationary pressures appeared to be increasing again. Unsettled industrial relations also added to anxieties about the future.