The Treasury and Civil Service Committee of the House of Commons said in their Report on the 1989 Budget that ‘the Chancellor on a tightrope’, meaning that the economy faced dangers of recession on the one hand and of accelerating inflation on the other. In our central forecasts we show a long period of slow growth rather than a recession, and the rate of inflation measured by the retail price index slows down very gradually from its current rate of just under 8 per cent. On this occasion, however, we give prominence to two variants on the central forecast, one with domestic demand continuing to grow quite fast despite the high level of interest rates and the other with an abrupt fall in demand in response to the tightening of policy last year.