-David Kuo is director at the financial website The Motley Fool. The opinions expressed are his own.-

You could not make this up if you tried.

Britain gets its knickers in a twist over a hung parliament, Europe has been unceremoniously skewered by a Greek debt crisis, and if that wasn’t bad enough, the Bank of England’s Monetary Policy Committee sits idly by as the rate of inflation climbs.

Welcome to the month of May when investors are supposed to sell and return again on St Leger’s day.

If truth be known, a hung parliament was always on the cards. It was always likely that no single political party would win enough seats in the May general election to form the next government.

Consequently, much horse-trading and political wrangling would follow when all the votes were counted – in some cases re-counted. What we did not expect, though, was politicians putting their self-interest ahead of the country’s interests.

While these unedifying events are taking place, the market is watching.

-David Kuo is director at The Motley Fool. The opinions expressed are his own -

There is a well-trodden saying that markets hate uncertainty. Elections are inevitably uncertain, so until the votes in the next election are counted we cannot be certain which party will govern the UK.

Currently, there are suggestions that no single party may get sufficient votes to form the next government outright. It is true that the Conservatives have a strong lead over its rivals. However, with a first-past-the post voting system, it only takes a small swing away from the Conservatives to change the complexion of the next parliament.

But let’s look at the problem facing the next government, whatever its colour. It may be blue, it may be red or it may be some combination of red and yellow or blue and yellow. That said, no government can ignore the budget deficit of £175 billion and the national debt of some £800 billion.

Politicians may like to stick their finger in their ears or bury their heads in the sand and pretend the problem does not exist until the election is over. But creditors won’t forget. Following the election, the next government knows that there will be howls of anguish and squeaking of pips when taxes are increased and public spending is slashed.

No government, a hung parliament or otherwise, can afford to ignore its creditors. The alternative is an even heftier annual interest bill. The current annual interest payment is already a whopping £40 billion and could rise further.

-David Kuo is director at the Motley Fool. The opinions expressed are his own.-

If you thought 2009 was as bad as things will get, then think again: 2010 could be worse. It is likely to be a year of enforced austerity with both the government and households making obligatory cuts to their budgets.

High on the government’s agenda will be reducing the Budget deficit, if the UK is to avoid the embarrassment of having its sovereign debt rating cut by rating agencies. This will have a knock-on effect on households, which could see their disposable incomes slashed by hikes in both direct and indirect taxes.

There are two possible ways for the government to reduce the Budget deficit. The first is to increase tax revenues and the second will be to slash expenditure – both of which will have an adverse impact on the economy. There is a third, which is to raise revenue through the sale of state assets. These may include the Royal Mint, the nations stake in part-nationalised banks, and anything else the Chancellor might find lurking at the back of the wardrobe.

It should, therefore, not come as a huge surprise to households next year if the government takes a larger proportion of our income through tax hikes. It is unlikely that businesses will be burdened with increased taxes (unless you include banks), so wage earners will shoulder most of the responsibilities. Consumers have already been warned of the reversal in the 2.5 percent cut in VAT on 1 January 2010, and it would not be unreasonable to expect VAT to rise to 22.5 percent or even as high as 25 percent afterwards.

Controversially, London shares may perform well next year even though the economy may remain in the doldrums. That’s because companies that generate a vast proportion of their income overseas dominate the FTSE 100 index. As a consequence, The Motley Fool still believes the FTSE 100 index could hit 7,000 points next year if businesses can achieve their profit targets next year.

Some of the bests performing London shares are likely to be those that have significant overseas exposure. So, look it may pay to look east for the best picks. These are likely to include banks such as Standard Chartered and HSBC. African insurer Old Mutual may also do well, as could British American Tobacco that sells its cigarettes to almost everywhere but the UK.

-David Kuo is director at the Motley Fool. The opinions expressed are his own.-Banks insist on the right to charge customers who go overdrawn on their current accounts. They also say they have a right to set the amount charged.The Office of Fair Trading (OFT), on the other hand, claims that the fees banks levy on customers who exceed agreed overdraft limits are unfair. This is according to their interpretation of the Unfair Terms in Consumer Contract Regulations.The ding-dong battle has been going on for years. Round One, which was heard in the High Court, went to the OFT. Round Two in the Appeal Court went to the OFT too. Round Three is being heard in the House of Lords.The stakes are high. Collectively, banks that include Lloyds Banking Group and Royal Bank of Scotland stand to lose almost 2.5 billion pounds in revenues every year if they aren‚t allowed to charge customers up to 40 pounds a time for going overdrawn without permission. Additionally, banks will have to refund customers who have been wrongly charged in the past if they lose.Banks probably have a good inkling they are on shaky legal ground. Consequently, they have been refunding charges, and often in full, when confronted by disgruntled customers. But from a moral standpoint, shouldn‚t banks be allowed to charge customers who abuse overdraft facilities.And therein lies the problem. Should customers who neglect to take care of their finances be continually subsidised by those who ensure that they maintain a healthy cash balance at all times? On the other hand, should financially disadvantaged customers be further penalised to allow others enjoy free banking?Neither is correct if we accept that overdrafts are a privilege rather than a right. And with today‚s sophisticated information technology, there is no earthly reason why banks cannot properly control the outflow of money from customers‚ accounts that would stop them from ever going beyond their agreed overdraft.But then again, why should they? Don‚t bank customers have some responsibility to regularly check and ensure that their accounts stay out of the red?Clearly mistakes have been made and correcting the mistakes will be costly. Banks will insist it current accounts are essentially loss-making and costs money to provide. But how much of that is the fault of antiquated banking practices that breed complacency and inefficiency.The eventual outcome of the “unfair bank charges” case is a foregone conclusion. And a major shake-up of the outdated British banking system will happen as a result. Inefficient banks will attempt to mask their incompetence with a clumsy introduction of fees and charges. Efficient banks will cross sell and gain market share.But banking as we know it will change.

- David Kuo is director of financial website The Motley Fool. The opinions expressed are his own.-

The housing market is probably one of the most keenly followed markets in Britain. Every month we are hit between the eyes with no fewer than eight separate indices that provide pointers to the state of play in the property market. These include supply side figures from Rightmove, demand side numbers from Nationwide and mixed-adjusted indices from the Department of Communities and Local Government.

The plethora of indices is enough to make anyone draw the curtains and lie down in a darkened room. But it is important to appreciate that each set of data will be different because they are drawn from very different data pools. For instance Rightmove’s index is based on sellers’ asking prices, which tend to be more optimistic than say, Nationwide’s index which is based on agreed sale prices. Additionally, Nationwide’s index is derived from mortgage approvals, and not everyone may need to apply for a mortgage.

Our anxiety over house prices probably stems from the fact that a home is the single biggest purchase that most of us will make in our lives. So, it is understandable that we want to know that our money is well spent. Worryingly, there are some seven million people who are hoping that rising house prices will save them from poverty because they have not put away enough money for their retirement.

If you are wondering if house prices have bottomed, the answer is probably not. Currently, the price of a typical home in the UK is around £153,000, which is still six times the average annual wage of a British worker of £24,000. The cuts in mortgage rates have helped to ease the burden of servicing mortgages. However, there are dangers to relying on low interest rates.

Whilst house-price watching is a popular national pastime, and one that I have to do professionally, it has never interested me that much on a personal level. That’s because I have neither considered my house as either an investment or as a substitute for my pension.

I have always thought of my home as a roof over my head that meets my living needs. After all, if I didn’t buy one then I would have to pay rent to a landlord, which wouldn’t bother me too much. At least as a tenant I wouldn’t find myself knee-deep in sewage unblocking a drain with a plunger on a sunny Sunday afternoon.

- David Kuo is director at The Motley Fool. The opinions expressed are his own. -

The Bank of England Monetary Policy Committee decided to leave interest rates unchanged at 0.5 percent in May. This came as no great surprise given that the Central Bank has already slashed interest rates to a level where further cuts would have made no discernible difference to the cost of money.

That said, there are other ways to drive down the cost of money. In this regard, the Central Bank still has plenty of gunpowder left in its keg to blast the UK economy out of the doldrums. So far, it has only printed two-thirds of the 75 billion pounds of fresh money authorised by the Government for quantitative easing. It can pump in another 75 billion pounds into the economy after that. So, in total, it has 150 billion pounds in its armoury.

It can be argued that the Bank now has little choice but to continue pumping money into credit markets through quantitative easing given that cutting interest rates has not worked. After all, the problem that that UK faces is not the cost of money but instead the quantity of money.

Curiously, pumping 50 billion pounds into the credit markets has yet to have an effect on broad money growth. But at some point quantitative easing will increase money supply. However, it will come at a heavy price – inflation.

Of course inflation appears to be subdued at the moment, though this depends on which inflation index is used to measure the rise in the cost of living. The Retail Prices Index (RPI) has fallen to zero but the Consumer Prices Index (CPI) rose from 3 percent to 3.2 percent. The latter, which excludes mortgage costs, suggests that the cost of living is still going up at a time when consumers have little appetite to spend money.

The danger for consumers is that when Quantitative Easing begins to work, the surge of money and credit into the economy could boost inflation significantly. It is therefore vital that savers ensure they are properly invested in assets that keep pace with inflation.