A Labour victory would be bad news for sterling

It's the waiting I can't stand.

I can't be the only one. Britain is in an awful limbo state just now. We have an election coming up, and a Budget to get through before that. And none of our potential leaders will tell us what they intend to do.

So it's good news that you can be sure of what you'll get with Gordon Brown. Utter fiscal incontinence.

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Despite the best efforts of his loyal(-ish) chancellor, Alistair Darling, to pretend that everything is under control, he just can't stop his boss from running around promising the earth to all and sundry.

Take his latest efforts to win the votes of "wimmin"

How is Brown going to pay for his latest set of promises?

Gordon Brown was interviewed on Netmums at the weekend. Going on a social website for mums and mums-to-be seems to be the modern political equivalent of running around pecking infants on the cheek. And it's just as pathetically transparent.

Gordon was in grand giveaway mode. Apparently, over the next few years, women will get the "legal right to choose where they give birth, including home births for anyone who wants one. And we want to see services changed so that not just mums but dads can be given a bed if they need to stay in hospital overnight after the birth of their baby. We have also set a goal to recruit an extra 4,000 midwives by 2012."

What if mothers are denied the hospital / home birth of their choice? Why, "they could be allowed to go private, with the cost met by the NHS," reports The Independent. "No price tag was announced, but Labour said it would implement the plan 'as quickly as possible' after the election."

And there'll be free jelly beans for all!

You have to laugh. There's Alistair Darling, putting his serious face on, and telling us that he's going to reduce the deficit in the next four years, but he can't tell us how. And there's his boss just doling out promises that Darling's somehow supposed to incorporate into his plans.

Where's all the money for this going to come from? Public spending needs to fall. So who's going to pay for that extra guest bed? For the extra cleaners to clean that extra bed? Who's going to pay for those extra midwives?

And is an extra bed really that important to an attendant father? A plastic chair or one of those big beanbags they seem to favour in maternity wards these days is pretty adequate, as I recall. If he needs a bed that much, then why not make him pay for it?

This might seem like a petty thing to pick on. But it cuts to the heart of the problem with Labour, and with Brown's approach specifically. The public sector, like it or not, does not have a bottomless pit of money to draw on. That means you have to make choices, to discriminate, to prioritise. But that doesn't seem to occur to Brown.

• Why UK property prices are going to fall 50%
• When it will be time to get back in and buy up half price property

The problem with trusting pre-election promises

He used to pretend that he understood this. He had his golden rule and his sustainable investment rule. The first was a pretty meaningless rule about balancing the budget over the course of an economic 'cycle'. It was meaningless because the length of said cycle was up to Mr Brown. The latter meanwhile, said that the government's share of GDP shouldn't rise above 40%. It's now closer to 50%.

So much for the rules. But the recession seems to have given Brown a new purpose. Now he's decided that all spending is good, so he wants to do as much of it as possible. And note that we won't get a commitment on spending cuts until after the election. As David Smith points out in The Sunday Times, "a comprehensive spending review will not take place until after the election as things stand, spending departments have no budgets from April 2011. Some of those budgets, when they are settled, will contain big real-term cuts in spending. For now, however, they have to be taken on trust."

It's that word 'trust' that worries me. Because Darling is also likely to come out and say that the economy will grow by 3.25-3.75% in 2011. The more rapid the growth, the easier it is to justify smaller cuts. The trouble is, those forecasts are on the optimistic side the consensus expectation is for 2.1% growth.

Judging from the past decade, and from the way the Budget is currently being sold to us (no tax rises, no proper spending cuts), I don't think that Labour is serious about dealing with the deficit. And I suspect that the real reason that sterling has tanked so badly recently, is through genuine fear of an outright election win for Labour.

How to protect yourself from a weaker pound

What does this have to do with your investments? Well, I realise that some readers don't like it when we talk politics. But politics and economics are of course, closely entwined. And now that the government is up to its neck in the markets, pulling strings here and there and fiddling with interest rates, they've never been more closely linked.

So like it or not, the election result matters. And if there's one thing the markets want to see, it's a strategy to tackle the deficit. But Brown has no credibility on this score. And every time he opens his mouth, he confirms that. It's as if he still believes that he really did abolish "boom and bust".

Voters are in danger of falling for the idea that, as Allister Heath puts it in City AM, "public spending and the size of the state are choices that can be made by politicians, rather than constraints about to be imposed by the financial markets on a hapless and powerless Westminster."

Unless we get change at the next election, or a miracle U-turn at the March 24th Budget, you can expect a weaker pound and higher interest rates. It might happen anyway. So be prepared. If you have a home loan, plan your finances so that you can afford for your payments to rise. If you don't have any gold in your portfolio, get some it's the best currency hedge and always worth having some in your portfolio as insurance. And make sure you have an emergency savings stash saving up six months' worth of living expenses is always wise, but even more when times are uncertain.

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