Pound Suffers in U.K. Election Stalemate

The U.K. election has ended in political gridlock, with no party gaining the overall majority needed to create a government.
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LONDON-- (

TheStreet

) -- As

predicted

, the U.K. election has ended in political gridlock, with no party gaining the

overall majority needed to create a government

.

With some results still to come, David Cameron's Conservatives have won 302 seats, short of the 326 needed to clinch power. The Labour Party, which is led by Prime Minister Gordon Brown, has 256 seats. The country's third party, the Liberal Democrats, won 56 seats, fewer than expected.

Gordon Brown, Nick Clegg and David Cameron

The U.K.'s political limbo, known as a "hung parliament," could nonetheless position the Liberal Democrats and their leader Nick Clegg as kingmakers.

Clegg has said that the Conservatives have the first right to seek to govern, according to the BBC, raising the possibility of a Conservative/Liberal coalition. Gordon Brown says that he would be

open to negotiations with the Liberal Democrats

if talks between Clegg and Cameron fail.

The Liberal Democrats, however, will likely demand major electoral reform in return for their support for either party.

In a speech in London on Friday morning, David Cameron said that he was ready to make a "big, open offer" to the Liberals. This, he added, would involve helping them "implement key planks" of their election manifesto and promised a committee of enquiry on electoral reform.

"Inevitably the negotiations we're about to start will involve compromise," he said.

Uncertainty over the U.K.'s election result continued to weigh on the pound on Friday, which was at $1.469 vs. the dollar.

"The pound has fallen thanks to the increased uncertainty and no one dare stand up and declare that they could possibly form a government," wrote Andrew Wilkinson, senior market analyst at Interactive Brokers, in a note released on Friday. "While not a surprise, the situation has left a rather large void in the country."

With Britain's budget deficit expected to surpass that of

Greece

, the U.K. election is being played out against a backdrop of growing economic upheaval.

All three parties acknowledge the importance of tackling the U.K.'s crippling 167 billion pound ($252.1 billion) budget deficit, with the Conservatives adopting the most aggressive approach. If elected, Cameron has vowed to attack public spending this year, although Gordon Brown is adopting a more cautious approach, planning cuts in 2011.

Gordon Brown, who recently

attacked the "moral bankruptcy"

of

Goldman Sachs

(GS) - Get Report

, fought a dogged campaign to keep his party in power, and used his last major election to speech to

warn that economic recovery would be at risk under a Conservative government

.

Prior to becoming prime minister, Brown spent years as the U.K.'s Chancellor of the Exchequer, or finance minister, but his time in 10 Downing Street has coincided with the country's worst recession in almost a century.

-- Reported by James Rogers in New York

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