Finance minister George Osborne has so far offered only verbal support for Ireland, but the Financial Times reported on Wednesday there were signs that Britain was considering providing its own direct loans as part of an aid package.
Osborne said he had no particular concern about British banks' exposure to the Irish market, but emphasised that it was in Britain's interest to see a strong and stable Ireland. "The UK banks have passed stress tests, the UK banking system is well capitalised," he told reporters in Brussels.
"Our engagement in this is because we are good neighbours of Ireland, not because we have particular concerns about any particular UK bank."
There have been jitters over the scale of Royal Bank of Scotland's exposure given that it holds about 5 billion euros worth of Irish government debt and has over 50 billion pounds ($80 billion) on loan to homeowners and businesses in Ireland and Northern Ireland.
Analysts at UBS have said the fears are overplayed, however, describing RBS' direct exposure to Irish government debt as "very modest" while Credit Suisse believes any further deterioration in its loan book is manageable and has already been priced in by investors.
Aid Conduits
Britain is not part of the euro zone but could be asked to contribute at least 6 billion pounds ($9.5 billion) under the European Financial Stabilisation Mechanism, leaving aside any bilateral aid.
Irish Finance Minister Brian Lenihan described Britain as very anxious to help. Asked if Britain might offer bilateral aid, Lenihan said: "That's a matter for the British authorities themselves to decide."
Prime Minister David Cameron has led business delegations to China and India this year, but British trade with Ireland is still greater than its business with the huge BRIC emerging economies -- Brazil, Russia, India and China -- combined.
Ireland is Britain's fifth biggest trading partner, receiving around seven percent of British exports.
British retailers such as Tesco and Marks & Spencer have a high-profile presence in Dublin, and Ireland is also a crucial market for goods produced in Northern Ireland -- which is trying to wean itself off reliance on the British public sector for employment.
Showing the close interdependency between the two economies, British food manufacturer Northern Foods said on Wednesday that it had agreed to merge with Ireland's Greencore to create major player in the ready meals market.
In a vote of confidence in Ireland, Northern Foods and Greencore said the new company formed by their merger would be based in Dublin, specifically citing the attractiveness of its low 12.5 percent corporation tax rate.
Britain, seeking to trade its way back to economic health, would like to see that rate increased to closer to its own levels. Corporation tax in Britain will fall to 27 percent from next April and the government plans to bring it down to 24 percent in subsequent years.
In terms of Britain's trading relationship with Ireland it is the underlying performance of the economy, rather than whether or not there will be a bailout, that counts.
"Irish enterprise is growing, exports are growing and that part of the economy is performing strongly," said Fergal O'Brien, chief economist at Irish business lobby IBEC.
"We don't see any threats to the real economy based on whether funding may or may not be needed," he added. (Reuters)