Over the last year we have been arguing that economic agents, be they households, companies or trades unions, try extremely hard to maintain their patterns of economic behaviour in the face of adverse conditions whether in the form of oil price rises, a world recession or governmental deflationary policies. Our output forecasts have therefore been somewhat less pessimistic than many others during the last year and actual outcomes have shown that, if anything, even we were too pessimistic for the period up to the second quarter of 1980 (chart 1). However, attempts to postpone adjustment can only last for a limited period especially if the economic conditions continue to worsen as they have done. It now appears that the resistance is beginning to crack and, as was pointed out in our last Review, the pressures fall most heavily on the non-financial company sector; hence the impact is reflected in rapidly rising unemployment and a steep fall in manufacturing output.