UK Conservatives win vote, take pole position

Prime Minister Gordon Brown has not given up holding on to power, however, adding to political uncertainty that rattled financial markets already reeling from sharp losses on global stock exchanges and the Greek financial crisis. Bookmakers saw a better than one-in-three chance of another British election this year, a scenario that would be likely to spook the markets further.

With results in 620 constituencies declared, the Conservatives were on 291 seats, followed by Labor on 251 and the centrist Liberal Democrats on 51. The lack of an outright winner could bring smaller parties into play. While Lib Dem Leader Nick Clegg was disappointed with his party’s showing, he called on the Conservatives, as the largest party, to try to form the next government. But he and other senior party officials indicated their support might be conditional on reforming an electoral process that is stacked against smaller parties.

“It seems this morning that it is the Conservative party that has more votes and more seats, though not an absolute majority, and that is why I think it is now for the Conservative party to prove that it is capable of seeking to govern in the national interest,” Clegg told reporters in London. Cameron was to set out his plans in a statement on Friday afternoon, his party’s statement echoing Clegg’s comments: “David Cameron will make a statement at 2.30 p.m. (1330 GMT) at which he will set out how he will seek to form a government that is strong and stable with broad support, that acts in the national interest.”

Markets spooked

The prospect of a “hung parliament” rocked already febrile financial markets. The pound tumbled, Britain’s top share index extended this week’s rout and gilt yields leapt as the inconclusive election outcome unnerved investors jittery about Europe’s mounting debt crisis.

But prices regained some ground after Clegg suggested that the Conservatives held the initiative and the ratings agency Moody’s said the ambiguous election result did not pose a direct threat to Britain’s triple-A sovereign debt rating. “The net result is masses of uncertainty. The new government is likely to be weak at best,” said Alan Clarke of BNP Paribas.

“Even in the case of a coalition, the partners will be constantly looking over their shoulders, and compromise politics will mean that the scope for delivering radical or unpopular fiscal tightening is limited.” Clarke said there was now a growing threat of a credit ratings downgrade for Britain, where the deficit is running at more than 11 percent of national output.

“Ahead of the election we saw the risk of downgrade at close to 50 percent. On the basis of the election outcome as it looks now, a downgrade looks to be the most likely outcome,” he said.

Coalition puzzle

Despite Clegg’s overtures, there was considerable uncertainty over the shape of any future government.

Senior Labor minister Peter Mandelson said he did not expect Brown to resign on Friday. He said he was ruling nothing in or out, and he and others in the party appeared to be wooing the Liberal Democrats.

“I don’t think it would help matters if he (Brown) were suddenly to step aside,” Mandelson said. However, Labor, in power since 1997, could struggle to form a coalition with the Lib Dems since their combined forecast seats would still be short of an overall majority.

The Conservatives could also seek a pact with smaller parties, most likely the pro-British Democratic Unionist Party in Northern Ireland, but would also struggle to assemble a majority without Lib Dem support. Britain does not have the same tradition of coalition building as its neighbors in Europe, and few Britons can remember the last inconclusive election almost four decades ago. The sense of confusion was heightened by reports that hundreds of voters had been turned away from crowded polling stations across the country when voting ended at 10 p.m.