NEW YORK (TheStreet) -- Thursday's contentious general elections in the U.K. remain too close to call, but in the end, both of the U.K.'s leading parties have something to lose.

"It's pretty clear we will see a coalition government," said Bill Adams, senior international economist with PNC Financial Services. "The larger parties will have to make concessions to smaller parties to keep the government together."

The current prime minister, the Conservative Party's David Cameron, is running against Labor Party Leader Edward Miliband.

If the conservatives win, the minority partner to the government will likely be the U.K. Independence Party, which is seeking a referendum to have the U.K. leave the European Union.

"That would be a huge change for British economic policy, it leaves this open question as to whether London will still be the capital of finance in Europe," Adams said. "I think once the specifics of how large that change would be for the British economy comes into focus, people will step back from the brink."

If the Labor Party wins, it will likely have to partner with the Scottish National Party, which held a referendum less than a year ago seeking independence for Scotland.

"They want a more federalist system in the U.K., which would also be a huge change for how the British government and economy work," said Adams.

The isolationism that has surfaced in the U.K. once again highlights the challenges facing the European Union, which has already had to contend with Greece's financial difficulties.

"When you go to Europe and you meet with policymakers or executives or regulators there, you rarely feel you are talking to a European," Adams said. "You can talk to British people, Germans, Spaniards -- there aren't that many people who have European identity there. And I think these institutions -- the European Central Bank, the European Union -- they are trying to pull together some very disparate parties to have a single Europe."

Although the elections are a toss-up in Britain, the economy is standing out as a winner. Adams says there has been strong growth in the past 12 to 18 months, helped by quantitative easing and low interest rates globally. He expects the Bank of England to raise interest rates later this year or early next. He says the pound is fairly valued between $1.50 and $1.55.

 

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