In general, the international economy continues to perform more strongly than expected, as it has since the end of 1987, but worries about inflationary pressures have led to policy tightening in several countries and this, along with other factors, points to a slowdown in growth this year. However, recent forecasts have proved fallible and, if growth does not recede, inflation could pick up. Partly because of these inflationary concerns, expansion outside the United States is not seen as a source of relief to the US balance of payments, and further progress in reducing the major international payments balances will depend on prudent US policies. At home it is now apparent, despite defects in the statistics, that demand was stronger last summer and autumn than was thought at the time. This contributed to the pick-up in inflation seen last year, despite excellent productivity performance. This Assessment reviews these issues as they contributed to the decision to raise interest rates further in November. The tightening of policy last summer led, after a lag, to a slowing in the growth of money and credit, and there are now welcome signs that the effects are spreading to the wider economy. The full effects both of the earlier and the more recent tightening are bound to take time to come through, meanwhile policy has to remain cautious.