UK's Budget Is Not Going To Help The Pound. By Nicholas Hastings

There is little chance that today's U.K. budget will help sterling. It will more likely just determine the pace of the currency's decline.

In itself, the budget will be of little consequence.

Despite all his promises of a "workman-like budget," Chancellor of the Exchequer Alistair Darling will no doubt employ recent efficiency savings and last month's smaller-than-expected public sector deficit for some eye-catching pre-election spending.

Promises of reducing the country's overall debt will remain as unconvincing as they have been in the past with any hints of real spending cuts postponed for the government's planned 'spending review' in the autumn.

Let's face it, Darling is hardly going to address the concerns of financial markets when he and the Labour Party still have hopes of winning an election.

If anything, data on Tuesday showing that U.K. inflation has peaked as expected at 3.5% in the year to January but is falling back even more rapidly than expected down to 3.0%, suggest that the U.K. economy is even more at risk from a double dip recession than many fear.

This could give Darling even more reason to postpone the day of reckoning when fiscal belts have to be tightened.

And it is the prospect--or not--of just this tightening that will determine the pace of sterling's decline as the widely-expected May 6 election draws near.

See how the pound has already fallen:

At the moment, with the opposition Conservative Party having only a narrow 6-point lead over the ruling Labour Party, the high risk of a hung Parliament with a government that cannot take the measures needed to keep the U.K.'s triple-A rating is the main concern driving the pound lower.

Should the Conservatives start to pull ahead, as many are expecting once the election is officially called, the pound's performance could well be determined more by hopes that a Conservative government will lean more towards spending cuts rather than the tax hikes Labour has promised to reduce the deficit.

Strategists at BNP Paribas summed up the risks: "The Conservatives suggest that they would want to take more immediate action with the focus very much on spending cuts, while Labour would want to see a slower approach with a greater emphasis on tax hikes. This scenario is seen as the one that is most likely to put the UK's triple-A rating at risk."

However, even the likely Conservative policy aimed more at pleasing the financial markets rather than the electorate won't be good news for sterling either.

Tighter fiscal conditions means that monetary policy will stay weaker for longer, with any suggestions that the economy is sliding back into recession raising the specter of the Bank of England not just extending quantitative easing a lot further but having to actually increase it.

Then the pound's decline from $1.65 early this year to $1.50 could well have proved to have been a gentle ride compared with what's to come.

Early Wednesday in Europe, the pound slipped to $1.4976 from $1.5045 late Tuesday in New York, according to EBS.

The euro was also lower at $1.3421 from $1.3496 with reports that Germany and France both now support International Monetary Fund aid for Greece failing to lift sentiment. Analysts noted that this suggests a continued inability of the euro zone to resolve its own debt problems.

The market is now waiting to see what, if anything, emerges from a two-day summit of European Union leaders starting on Thursday.

The euro also sank to Y121.60 from Y122.02 as the dollar rose to Y90.62 from Y90.40 even though Japan reported a 45.3% rise in exports in the year to February. Although some of this represented data dropping out from the post-Lehman slump last year, it still put export growth at its highest level in 30 years and will encourage more positive views of Japan's economic recovery.