Mr Darling's budget

'TURBULENCE IN global financial markets, which started in the American mortgage market, has affected all economies from the United States, to Asia as well as Europe." Alisdair Darling's observation about US economic prospects in yesterday's UK budget speech was intended to exculpate him from charges of caution and narrow options but is surely well taken.

His first budget as Chancellor was framed more by this global turbulence than by the immediate needs of the British economy.

That is the reality of national budgeting these days - and not least in Ireland. As Taoiseach Bertie Ahern pointed out on Monday, "we won't escape that. What we have to try to do is keep up the growth rates". The deteriorating economic situation in the United States means "it is going to be a hard year", he said. Mr Darling's approach to this problem involves lowering expected growth rates, raising government borrowing and staggering the impact of extra taxation. This left him relatively little financial scope to pursue Labour's social agenda but he found room for increased taxes on alcohol, cigarettes and large cars, while continuing his government's policies to combat carbon emissions, climate change and basic poverty.

Compared to George Brown, his predecessor and now boss, Mr Darling has had an extraordinarily difficult first eight months as chancellor. Whereas Mr Brown delivered 10 successive budgets without having to manage a significant economic downturn - not to mention a recession - Mr Darling has taken the full impact of the developing US subprime crisis, overseen the consequential nationalisation of the Northern Rock bank, addressed steadily diminishing UK growth rates and deteriorating public finances and has had to frame this budget on that highly uncertain basis.

A great deal depends on how accurately he has read the fall-off in growth, since that will determine his budgetary balances between now and the next election. If Mr Ahern is right, the UK economy will be affected just as much as Ireland's by US turbulence over the next year. And although they are less interconnected than before because of our trade diversification and euro membership, the British and Irish economies are more exposed to US economic influence than most other EU member states. The same is true of Northern Ireland, where hopes of attracting substantial new US investment at the forthcoming investment conference will inevitably be affected by these developments.

© 2008 The Irish Times

This article appears in the print edition of the Irish Times