When we carried out our forecasting exercise in February, we were awaiting a decision about another incomes policy beyond August and, on the exchange rate assumption we made then, which corresponded to the authorities‘ stated aim of 'maintaining competitiveness', we could foresee no improvement in the current external balance within the forecast period. The Budget was yet to come but it seemed clear to us that the Chancellor had little room for tax cuts, given the external position. We advocated an incomes policy with a low norm, combined with a modest amount of devaluation designed to start improving the current balance; a small tax cut of £½ billion could, we thought, be incorporated to assist acceptance of the incomes policy without preventing this improvement.