By 1958, the RCAF had again halved its requirement for Arrows but was still receiving almost fifty per cent of a shrinking defence budget: the Arrow programme alone had cost $300 million to date. An alarmed CSC realized that if the Arrow programme went ahead as recommended there would no money for re-equipping European-based RCAF squadrons for the nuclear strike-reconnaissance role, replacing aging navy warships, or acquiring armoured vehicles and tactical nuclear missiles for the army. Furthermore, the launch of Sputnik heralded the dawn of the missile age. The strategic rationale behind Western defence policy shifted from an emphasis on defence to deterrence: NORAD forecast that by 1961, the year the Arrow was scheduled to enter squadron service, the principal Soviet threat to North America would come from intercontinental ballistic missiles, not bombers.
While Avro lobbied frantically, the CSC informed the Diefenbaker government that there were only two feasible courses of action left. One was to complete the Arrow production run at the staggering cost of $12.5 million each. The alternative was to cancel the project and to buy from the US two relatively cheap Bomarc-B nuclear surface-to-air missile installations, its complementary command anad control system and 100 comparable interceptors at a greatly reduced cost of $2 million each. But Diefenbaker was not yet ready to swallow such a bitter pill. On September 23, 1958, Diefenbaker announced that air defence requirements were to be revised because of the diminished Soviet bomber threat. The two Bomarc-B bases would be built, the Astra I and Sparrow II programmes were cancelled, but because of serious unemployment in the Toronto area a decision as to what interceptor to procure would be postponed for six months.