UK economic crisis matters for Ireland

Ireland’s economic links with the UK have reduced over the years, but as our nearest neighbour they are still important and so the extraordinary upheaval at Westminster has implications here. A stable and healthy UK economy is in Ireland’s interests — but that is far from the current position.

The most obvious impact is on exporters, particularly SMEs and companies in sectors like food for which Britain is often a vital market. Economic confidence in Britain is taking a heavy hit from the latest events and there is a sense that the real costs of the Brexit project — as well as the price of a bout of incompetent management — are becoming evident.

There are other important implications, too. Ireland now looks like a safer bet for foreign direct investment. Not only does this country offer access to the EU single market, but also the UK corporation tax rate is now to go back up to 25 per cent next year, rather than be frozen at 19 per cent as had been promised in the mini-budget. Even if the Irish rate for the biggest firms rises to 15 per cent as part of the EU response to the OECD tax deal, there will still be a sizeable gap. Perhaps even more importantly, the general political and economic instability in Britain is likely to be a red flag for investors, for now at least.

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The impact on the talks regarding the Northern Ireland protocol is harder to call. There had been speculation of a better atmosphere in the talks and some possibility of a deal, even if some really difficult issues remain. But does the EU side feel the current UK prime minister Liz Truss — or her government — will be in place long enough to do a deal?

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Perhaps the most important message, meanwhile, is the obvious one. The constraint on countries borrowing provided by the markets is back, after years when super-low interest rates and then central bank support through Covid-19 made it much less of a factor. This, too, matters for Ireland. While the budget is now in surplus in Ireland, like all other countries, the State needs to retain credible economic policies to refinance borrowings and raise new debt in the years ahead.