Like his counterparts across Europe, the British chancellor, Mr Gordon Brown, is facing the impact of slowing growth on exchequer finances - and hoping that a recovery later this year will help him to avoid tough decisions.
In his budget statement yesterday he cut his growth forecast for this year to between 2 and 2.5 per cent, but said he anticipated a recovery to growth of between 3 and 3.5 per cent next year. These forecasts look optimistic against a background of international uncertainty and will only be achieved if the end of the war in Iraq lifts consumer and business confidence.
Taking an upbeat view of economic prospects allowed the chancellor to introduce a reasonably conservative budget, while still holding down borrowing . However if growth is slower, then borrowing will come under upward pressure, as has happened in France, Germany and Italy and, to a lesser extent, in the Republic.
Even with relatively optimistic assumptions, Mr Brown still had little money to spend, making it a fairly straightforward budget which had no major direction. Tax bands were indexed for inflation, but there was no change in headline income tax rates. Meanwhile the old reliables of cigarettes and beer were hit, to raise some badly needed revenue.
Mr Brown made a point yesterday of highlighting the strength of the British economy when compared with the main euro zone countries. Even a revised British growth rate of between 2 and 2.5 per cent is well ahead of the euro zone average this year, which is now expected to be 1 per cent. The British economy has coped relatively well with the international slowdown and has had a solid economic record in recent years.
From an Irish viewpoint, a recovery in British economic growth would be welcome. Britain remains our biggest single export market and is particularly important for indigenous industry. Exporters to Britain have suffered recently from a fall in the value of sterling against the euro, which has hit their competitiveness. A recovery in British growth would go some way to alleviate this pressure.
The other key issue from an Irish viewpoint is whether the Blair government will seek to bring sterling into the euro. Mr Brown will announce in early June whether Britain meets the "five tests" set for sterling membership. If it does, the British people will be asked to vote on the issue in a referendum. While British membership would be very much in Ireland's interests, an early move to a referendum looks unlikely, given the divergent performance of the UK and main euro zone economies.