Events since December have been dominated by the plunge in crude oil prices and the repercussions in world financial markets. The fall reflects the incompatibility of OPEC price and output objectives and the abandonment of the former's primacy, against a background of short-run inflexibility of oil demand and non-OPEC supply. The outlook for oil prices remains highly uncertain, depending crucially on whether OPEC reasserts supply restraint. If they stay low, the industrial world stands to benefit significantly in terms of non-inflationary growth, with lower inflation expectations signalled by falls in interest rates in most centres, and gains for the major countries most reliant on oil imports reflected in appreciation of their currencies. Non-oil developing countries will benefit too, but heavily indebted oil exporting countries face serious problems. The United Kingdom will also benefit on balance from cheaper oil, despite being a substantial oil exporter in the medium term, which implies immediate losses to oil producers' incomes, government revenue and the trade balance. The Assessment reviews real and financial developments in the domestic economy in the light of these external developments and considers their implications for prospects and policy at home, where markets have responded favourably to the recent Budget.