The heir to the baronetcy of Ballintaylor, Tipperary, the UK chancellor George Osbourne, remains under pressure to explain the exact level of support the UK government will be giving its closest neighbour. His comments early last week heightened worries that the UK was going to increase its public-sector debt bill in order to offer a bailout alternative to the chancellor's ancestral home.

There is also increasing concern that the crisis in Ireland may have a damaging impact on the UK economy. Last Thursday, the director-general designate of the Confederation of British Industry tried to calm any worries in the UK market that the problems in Ireland could spread to the UK due to the UK bank's exposure to Ireland. John Cridland said: "Ireland is not Greece. This is a banking, not a fiscal, problem. The message from the bond market is that the UK government is in a strong position to withstand any reverberations that might result". However, market sources said these comments unnerved some investors and increased pressure on banks to publish details of their exposure to the Irish market.

The UK market is already worrying about the two largest nationalised UK banks, Royal Bank of Scotland and Lloyds.

Royal Bank of Scotland (RBS), which is more than 80% owned by the UK government, and owns Ulster Bank, is the largest concern. Its Irish exposure is significant given that it holds about £5bn worth of Irish government debt and has lent over £50bn to Irish mortgage holders and businesses. In a recent report, Morgan Stanley said that RBS's exposure was "significant" at more than 100% of its tangible net asset value.

Lloyds Bank, which is over 40% owned by the UK government, already has £11.7bn in impaired loans in Ireland, according to Morgan Stanley.

Whether the Irish government decides to take a bailout from the EU or the UK or a combination of the two, the UK taxpayer is going to be on the hook for at least £6bn.

"Ireland is our closest neighbour and it's in Britain's national interest that the Irish economy is successful and we have a stable banking system", the chancellor explained. "Britain stands ready to support Ireland in the steps it needs to take to bring about that." Ireland will tap the European Financial Stabilisation Mechanism and the UK's proportion of that will be to provide at least £6bn. There is also an offer of direct bilateral aid from the UK government and this will be significantly more costly to the UK taxpayer.

The reasons for the British government's offer of help are clear. Ireland is a significant trade partner of Britain. It remains one of Britain's largest export markets. Britain exported more to Ireland than to Brazil, Russia, India and China combined. UK exports to Ireland are worth just under 2% of national income. And the UK, like Ireland, is hoping for an export-led recovery from the current recession.

According to Brian O'Reilly, head of research at UBS Private Banking: "Part of the reason cited for the UK's willingness to support Ireland is that the UK has most to lose from the collapse of the Irish banking system but the risk of contagion between Irish and UK banks is overdone. Our figures suggest the risk of contagion of a worst-case scenario for AIB and Bank of Ireland is limited. The stress tests the EU did on the banking sector indicate that sovereign exposure for the UK to AIB and BoI amount to just over €1bn."

Appreciation of sterling against the euro due to a loss of confidence is also a significant worry for UK manufacturers. Any weakening of the euro would make UK products even more expensive for Irish consumers, thus potentially denting a UK export-led recovery. In addition, UK retailers have a significant exposure in Ireland. Marks & Spencer and Tesco are both major players here as are many high-street names.