Recent developments at home and overseas have been dominated by the further climb of the US dollar to a peak at the end of February. Questions remain about the sustainability of the economic recovery both in the United States and elsewhere. Despite wide exchange rate swings, there are signs of a satisfactory convergence of growth and of inflation among major countries, for which firm policies in Europe and elsewhere can take some credit. After drifting down in the autumn, sterling came under particular pressure in January and its depreciation appeared to threaten the effectiveness of domestic policies against inflation. Determined action to reassert the anti-inflationary thrust of policy was taken and backed up in the Budget. As a result, sterling recovered, and there is a prospect that the inflationary consequences of its earlier weakness will be limited, while underlying growth continues. This Assessment considers the forces behind these developments.
Published on
01 March 1985