LONDON, May 11 (Reuters) - Britain's Liberal Democrats will pursue a deal on Tuesday, May 11, to form a government with one of the two larger political parties after an inconclusive election that forced Prime Minister Gordon Brown to say he would resign.
Brown’s announcement, designed to keep his Labour Party in power, disrupted efforts by the centre-right Conservatives to broker a power-sharing deal with the Liberal Democrats after the country’s first election producing no clear winner since 1974.
With markets and voters keen for an end to the political uncertainty that followed last Thursday’s close-fought poll, Liberal Democrat lawmaker Simon Hughes said his party hoped it could reach an agreement later on Tuesday.
"We are determined to make sure this process is concluded very soon, if it can be today then it will be, certainly very soon indeed," he told Sky News. "We would like to do it today."
Conservative leader David Cameron said it was "decision time" for the Liberal Democrats.
Britain is emerging from its worst recession since World War Two with a record budget deficit that analysts believe will only be cut effectively by a strong government.
By 0740 GMT, the FTSE 100 index of leading shares was down 1.16 percent and UK gilt futures fell more than half a point as the uncertainty weighed on the market.
"The market wants a conclusion to this and whilst we are without a conclusion the market will remain nervous," said one London-based gilts trader.
The head of the French financial markets watchdog said the uncertainty was likely to hit Britain’s markets, but London should not rely on EU help in any financial crisis.
"The English are very certainly going to be targeted given the political difficulties they have. Help yourself and heaven will help you," Jean-Pierre Jouyet, who was European affairs minister from 2007-2008, told Europe 1 radio.
BIDDING WAR
The Conservatives emerged as the largest party in parliament in the election but fell 20 seats short of an outright majority in the 650-seat parliament, leading to a bidding war between the three main political blocs.
They quickly began talks with the centre-left Liberal Democrats, or Lib Dems, on a government alliance. However, the smaller party wanted clarity on issues such as electoral reform.
The Conservatives responded to Brown’s statement by offering the Lib Dems a place in a coalition and a referendum on limited electoral reform that falls short of their demand for a genuinely proportional system.
"That’s our last offer in that area," Conservative finance spokesman George Osborne told the BBC. "But I’m very willing to discuss with the Liberal Democrats how we create that strong, secure government and deal with this massive economic problem."
Sensing a hesitancy on the part of the Lib Dems, Brown said he would step down by the time Labour holds its annual party meeting in September.
Lib Dem leader Nick Clegg had said during the campaign that he was reluctant to work with Brown and the prime minister’s departure could smooth the path to a deal.
Clegg, 43, finds himself in a difficult situation. His party has more in common with Labour in terms of policy, but the two parties combined would be unable to command a majority and would need to enlist the support of smaller parties in a potentially more unstable "rainbow coalition".
An alliance with the Conservatives would offer a more stable formation, with a strong majority but a more difficult political compromise. Activists on one Lib Dem website were leaning towards a deal with the Conservatives, rather than Labour.
"How can anyone with any gumption call for stable government and then propose allying with a party which is going to spend the next four months in a bitter leadership contest?" said one blogger on Liberal Democrat Voice.
Britain is unfamiliar with coalition negotiations and the talks cannot drag on for weeks as they do in some of its continental European neighbours.
Parliament is due to resume sitting on May 18 and the new government will present its programme on May 25.
