Growth abroad is now moderating but for the year as a whole is likely to exceed expectations substantially. Although the US trade deficit has fallen, the improvement may be slowing and less of the counterpart lies in reduced German and Japanese surpluses than had been hoped. Weaker commodity prices mean that the external inflationary pressures on industrial countries have lessened, though the difficulties of indebted commodity producers remain severe. Against this background the supply performance of the domestic economy has been remarkable. Output continues to grow rapidly, although less so than domestic demand, and shows little sign of faltering. Earnings have accelerated but much of this has been offset by strong productivity growth. This Assessment considers the recent tightening of policy designed to rein back domestic demand and reverse the worsening of inflation, and examines the signs that it is working, not least through the housing market.