Throughout this year there has been growing evidence of an expansion of economic activity, but it remains rather subdued. After some deterioration earlier in the year, financial conditions have improved since the measures of 8th June. The rate of inflation has changed little in recent months. The main ingredients of the recovery over the last year have been evident for some time and are indicated in the chart. After two quarters of contraction, consumer spending has risen fast since the middle of last year and in the second quarter it was 5% higher in real terms than a year earlier. An unusually rapid increase in real personal disposable income-the result of earnings rising more than twice as fast as prices, augmented by tax cuts-has been responsible. For a time this sharp expansion of demand was not reflected in much increase in output, because of much reduced stockbuilding and an interruption in the growth of exports.