Sterling entered the ERM on 8 October. This Assessment discusses the context and implications of that decision and the related decision to reduce base rate to 14%. These actions occurred against the unsettled international background of events in the Gulf which have pervasive implications for the world economy through their immediate and prospective effects on the price of oil. They also impinge on the domestic economy; despite its self-sufficiency in oil, adjustment is required. Moreover, domestic demand had already slowed substantially in response to the earlier tightening of policy. For these reasons unemployment has already starting rising and is liable to do so further unless wage behaviour adapts to the disciplines implied by ERM membership.