Nick Clegg attacks David Cameron over 'economic meltdown' fears

Mr Clegg will compare the threat to a "protection racket" and accuse David Cameron of trying to win the election by fear.

As the value of the pound fell last week, Tories blamed market concerns about the possibility of a hung Parliament and uncertainty about the direction of Britain's economy. Shadow business secretary Kenneth Clarke warned voters not to "elect themselves into a financial crisis".

Mr Clarke warned that a fourth Labour term would leave Britain "at the mercy of the bond markets and international finance", causing interest rates to soar and the pound to be "sent on a downward spiral".

Speaking to Liberal Democrat workers today, Mr Clegg will say: "The Conservatives are so desperate that they have resorted to a crude form of blackmail.

"David Cameron and George Osborne are stoking up fears in the markets, actively trying to destabilise the pound and reduce the Government's ability to borrow.

"It's like a protection racket: vote for us or our friends in the City will lay waste to your economy, your savings and your job."

And he will say that scaremongering about the economy is part of a wider Conservative strategy of negative campaigning.

"There is nothing positive in the Conservatives' election strategy," Mr Clegg will say. "It's built entirely on the hatred of Gordon Brown, stoking up fears of a broken society and now threatening economic meltdown.

"It's a strategy that is completely negative and without hope, and it's becoming increasingly obvious that people aren't going to fall for it."

Despite his criticism of the Tories, Mr Clegg yesterday refused to rule out a formal alliance with either Conservatives or Labour in the event of a hung Parliament, saying: "Of course you need to talk to each other."

It was up to the party with the "wind in its sails" to decide whether it would govern on its own or form an alliance if there was no outright majority after the general election, he said.