The British election failed to produce a decisive result. With no party able to win an overall majority in the House of Commons, Britain has its first "hung parliament" since 1974.

(From L to R) British Liberal Democrat Party Leader Nick Clegg and his wife, British Conservative Party Leader David Cameron and his wife, British Prime Minister Gordon Brown and his wife. [Xinhua]

At the time of writing, the three main political parties are jockeying and negotiating between themselves about the formation of a new government. At a moment when the UK faces a number of economic challenges, the financial markets have reacted negatively to the uncertainty surrounding Britain's immediate political future, with the value of the UK stock market falling 2.6 percent last Friday and the British pound falling to a year low against the dollar.

The most likely scenario is that the Conservative Party will form the next government with the support - in formal coalition or otherwise - of Britain's third biggest party, the Liberal Democrats. Having won the most parliamentary seats but failing to secure a majority for his party, Conservative leader David Cameron publicly reached out to the Liberals on Friday with what he described as "big, open and comprehensive offer". 

Outlining areas of difference on immigration, Europe and defense, Cameron nevertheless claimed that there was enough "common ground" on tax, education and environmental policy for the parties to work together in the national interest.

It is unclear how the Liberal Democrats will react to his offer. Many "progressives" in the party will balk at the idea of an alliance with a Conservative government, particularly if it includes no promise on electoral reform. Should Cameron and Liberal leader Nick Clegg not be able to strike a deal, the Labor Party's Gordon Brown - who will remain as Prime Minister until a solution is found - has made clear he is willing to offer generous concessions to the Liberals if they will join with Labor to form the next government.

Whatever the result of these negotiations, the next government will have no choice but to work quickly to secure Britain's economic recovery and address a huge budget deficit. All parties agree that deep cuts in public spending will be required to reduce a deficit that currently stands at 12 percent of GDP, and projected to become the highest in the European Union (EU) over the coming year. The election campaign reflected this by focusing on economic issues almost to the exclusion of anything else.