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Export-led recovery at risk as UK inflation approaches 5pc

HOPES for an export-led recovery could be undermined if runaway inflation in the UK drags down competitiveness here, Irish exporters warned last night.

The warning comes as weakness in the UK economy shrinks the export market for Irish goods and services.

Ireland's export sector grew through 2010, but weakness in key trading partners could undermine the sector's successes, economists and business leaders warned last night.

The warnings came after the Bank of England governor Mervyn King said inflation could hit 5pc in the UK this year.

He made the claim after the UK's Office of Nationals Statistics said the UK economy shrank by half a percent in the last quarter of 2010.

The Irish Exporters Association (IEA) said both trends were bad for Ireland and served as a warning that the recovery in key export markets remains fragile.

NCB economist Brian Devine said the UK was a key trading partner, so any damage to the UK economy would be a danger for Ireland.

He already anticipates a substantial drop in Irish service-sector exports when figures for late 2010 are published.

Mr Devine said the UK accounted for around 18pc of all Irish exports. The UK is the third-biggest importer of Irish goods and services after the US and Belgium, where many Irish-produced pharmaceuticals are moved after manufacturing.

However, Ireland imports more from the UK than it exports to the country, including everything from processed food to parts and services for industry. This means inflation in the UK could drive up prices here.

"The worry is that we could end up importing inflation at a time when our own drive towards competitiveness remains a work in progress," said IEA chief Pat Whelan.

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