Britain’s opposition Conservatives became the biggest party in parliament on Friday in a bitterly fought election, but were set to fall short of a majority, leaving it unclear who would run the country.
British asset prices crumbled as the prospect of the first inconclusive election result since 1974 unnerved investors already spooked by a global equity market sell-off.
With 46 of the 650 seats yet to be announced, the centre-right Conservatives led with 287 seats, ahead of ruling Labour on 239 and the Liberal Democrats, deflated after a surprisingly poor showing, on 51.
Conservative leader David Cameron said the ruling Labour party had “lost its mandate to govern”, and Prime Minister Gordon Brown was asked by a reporter whether he would resign as he returned from his constituency to his residence at No. 10, Downing Street. He did not reply.
Under the constitution, Brown has the right to try and form a government first, potentially opening the door to a period of political horse-trading. He could struggle to form a coalition with the Lib Dems; however, since their combined forecast seats would still be short of the 326 needed for a majority in parliament.
The prospect of a “hung parliament” and uncertainty about who would form the next government hit already febrile financial markets.
The pound slumped against the dollar, equities tumbled and gilt futures went into reverse on a mixture of political uncertainty in Britain and turmoil on other exchanges.
The focus switches on Friday to possible talks between the parties to break any deadlock. They will be assisted by civil servants who have prepared briefing documents outlining key elements of party proposals and their costs.
However, none of the leaders were prepared to give details about what they might do now. “I don’t think anyone should rush into making claims or taking decisions which don’t stand the test of time,” said Lib Dem leader Nick Clegg.
Peter Mandelson, Labour’s business minister, added that he understood Brown had yet to open talks with Clegg’s party. “I’m not ruling out or ruling in anything,” he told BBC TV.
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 2100 GMT.
The centre-right Conservatives were forecast to win around 305 seats and Labour 255 seats in the lower House of Commons. The Lib Dems were a distant third with an expected 61.
Most seats showed a swing in support to Conservatives, but not all of sufficient size to give the party the majority.
Notable losses for Labour included former cabinet ministers Charles Clarke and Jacqui Smith, while Northern Ireland’s first minister, Peter Robinson, of the Democratic Unionist Party, was the highest-profile casualty of the night. Gainers included the Greens, who won their first ever parliamentary seat.
The next government will have to deal with a record budget deficit running in excess of 11 percent of national output, and demands for political reform following a parliamentary expenses scandal last year that left Britons disgusted with lawmakers.
Markets fear a stalemate could lead to political paralysis, hampering efforts to tackle the nation’s spiraling debt and secure recovery from the worst recession since World War Two.
Britain’s FTSE 100 share index fell around one percent in early trade, following losses in Asian equity markets after U.S. stocks plunged as much as 9 percent late on Thursday. The pound sank to a one-year low against the dollar, below $1.46, and fell sharply against the euro.
“The current global financial turmoil puts pressure on all parties to reach a rapid agreement,” said Brian Hilliard, UK economist at Societe Generale. “In our view there could easily be an attack on the pound and on UK government securities if the markets sense deadlock in the political negotiations.”
Independent think-tanks have accused all the parties of failing to be open with voters about the scale of cuts that will be needed to restore public finances, meaning any government could face a plunge in popularity early on once cuts begin.
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