Prospects for growth in the world economy have deteriorated sharply over the last quarter. Expectations of the rate of growth of the major six overseas economies in 1992 have been lowered from around 3% to closer to 2%. The weaker outlook is most evident in the United States and Japan where the authorities have responded by cutting interest rates. In Europe, by contrast, interest rates have generally been rising. The Bundesbank raised rates at the end of last year. All other ERM countries, apart from the United Kingdom, followed this move by raising rates by varying amounts. In the United Kingdom, output has yet to recover. But there has been considerable progress in reducing inflationary pressures. Risks remain primarily those associated with high levels of indebtedness - but leading indicators continue to point towards an upturn this year.