The state of the economy in 1977 was described in Chapter I. In the first quarter of this year, there have been two connected developments which have significantly altered the picture of the very recent past and the immediate future which we presented in the February Review. The first is that the current balance on external account in the first quarter is now estimated to have been in deficit by over £200 million compared with the surplus of some £500 million which we expected in February. This represented a massive deterioration—of nearly £600 million—from the last quarter of 1977. The second is that, probably in consequence, the exchange rate fell sharply during the quarter, and ended April (in IMF weighted terms) at 62.5, or roughly the level ruling before last autumn's sharp appreciation. In February, on the basis of the forecast current account surplus, we had expected the rate to appreciate a little further in early 1978.