On this occasion we have adopted a rather different format for this chapter from the customary one. Part One begins with an analysis of some of the most important developments of the past few years, with notes on the deterioration in the balance of payments, on the fall in the savings ratio and on the acceleration of inflation. Next we discuss some of the problems associated with economic forecasting. We analyse the errors made last year and compare them with the error margins normally associated with short-term forecasts of this kind. We look at the behaviour of the economy at the corresponding stage of previous economic cycles. And we consider the best way of forecasting GDP when there are discrepancies between the measures of its growth in the past. Our central forecasts for 1989 and 1990 are described briefly in the text of Part Two, and more fully set out in the usual tables. We end in Part Three with a discussion of alternative scenarios for the medium term, with particular reference to their implications for interest rates and the exchange rate. An appendix describes the regional pattern of unemployment and the way it has changed since the early 1980s.