UPDATE 2-UK Lib Dems consider Conservative government offer

* Liberal Democrats meet to discuss possible deal

* Party likely to struggle with supporting Conservatives

(Adds comments from politicians)

By Jodie Ginsberg

LONDON, May 8 (BestGrowthStock) – Britain’s Liberal Democrat leader
Nick Clegg sought backing from senior party members on Saturday
for a possible deal with the Conservatives after an election in
which no party won an outright majority.

The centre-right Conservatives under David Cameron won the
most parliamentary seats in Thursday’s election but need the
support of other parties to form a stable government that can
tackle a record budget deficit.

A deal with the much smaller centre-left Liberal Democrats
might achieve that and give the Lib Dems their first shot at
government in decades.

But leader Nick Clegg must overcome scepticism among a
significant number of his party, who fear that Britain’s third
largest party would be forced to sacrifice too many cherished
policies for a deal.

Clegg said on Saturday that four core areas of tax,
education, economic recovery and fundamental political reform
were at issue.

“It’s precisely those four changes which will guide us in
the talks ahead,” he said before a meeting with senior Lib Dem
politicians.

Financial markets, already rattled by a debt crisis in
Greece, want a new government to be formed quickly so it can set
about reducing the deficit swiftly and decisively.

The pound, British government bonds and the London stock
market all fell on Friday when it became clear the Conservatives
would not have a parliamentary majority, but sterling and bonds
recouped early losses on the prospect of a deal with the Lib
Dems. [ID:nLDE64626P] [ID:nLDE6461JP] [ID:nLDE646240]

There is no deadline for a deal but prolonged negotiations
are likely to rattle markets.

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For an overview of election stories [nUKVOTES]

Graphic of results http://r.reuters.com/hym23k

Graphic of gilt and stg reaction http://r.reuters.com/nec23k

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DEAL OR NO DEAL?

Conservative leader David Cameron left open the format a
deal might take when he offered on Friday to work with the Lib
Dems.

This could be a coalition, a rarity in Britain, but is more
likely to involve a pact in which the Lib Dems agree to support
a Conservative-led minority government in implementing an agreed
legislative programme, in return for concessions. [nLDE64701Q]

Senior members of both parties met on Friday night and
further talks are expected over the next few days.

The most important hurdle is agreement on the pace of
lowering the budget deficit. The Conservatives have pledged to
start cutting it immediately but the Lib Dems say this could
harm Britain’s recovery from a deep recession in 2008-2009.

Britain’s role in the European Union, immigration, defence,
and electoral reform are also likely to be stumbling blocks.

The Lib Dems have long pushed for a change to the current
electoral system, which is stacked against smaller parties, in
favour of proportional representation. [nLDE6462CK]

Clegg has to persuade Lib Dem members of parliament that it
is worth making concessions, even though many party members are
sceptical.

“I will never consider voting for the Lib Dems again if a
Conservative/Lib Dem pact is the outcome of this election!” one
supporter said on Liberal Democrat Voice, a web site for party
activists. [ID:nLDE6462AN]

If the Lib Dem/Conservative talks fail, a deal between
Clegg’s party and Labour is possible, but more complicated as
the two parties combined would not have enough MPs to command a
majority in the 650-seat House of Commons.

A Lib Dem-Labour deal would therefore have to involve small
regional parties such as Wales’s Plaid Cymru and the Scottish
National Party.

Labour leader Gordon Brown has said the Conservatives and
Liberal Democrats have the right to try to form a government
first, even though he is entitled as sitting prime minister to
have the first attempt under Britain’s constitution.

His party has pledged to hold a referendum on electoral
reform, although critics point out that Labour has promised this
to the Lib Dems in previous deals, but never delivered.
(Editing by Kevin Liffey)

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UPDATE 2-UK Lib Dems consider Conservative government offer