The dollar price of oil has risen 50% since June but is less than half what it was a year ago. Over the year the US dollar has fallen 20% in effective terms to a point 30% below its February 1985 peak and 4% below its value in June. Since then the Federal Reserve System's discount rate has twice been cut by half a percentage point. American hopes that others would follow their lead in reducing interest rates have not yet been fulfilled. The consequent strength of the yen and the deutschemark contributed to a perceptible weakening of sterling in July. This Assessment considers the implications of these developments for the prospects for the UK economy and as a background to the evaluation of the stance of monetary policy.