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updated 5/10/2010 1:57:00 PM ET 2010-05-10T17:57:00

British Prime Minister Gordon Brown said on Monday he would step aside this year, sacrificing himself to try to give his Labour Party a chance of forming a government with the smaller Liberal Democrats.

The Lib Dems are now talking to both Brown's Labour Party and their Conservative rivals about trying to form a government after Britain's first inconclusive election since 1974.

* Brown's gambit will slow efforts to form a government, while the Lib Dems juggle two sets of negotiations. Markets had hoped for a deal within a day or two, but that now seems optimistic. Sterling fell after Brown's statement and government bond prices plunged.

* The Lib Dems and Labour have more in common in policy terms -- both have talked about delaying spending cuts until recovery is assured. Labour made a manifesto commitment to hold a referendum on voting reform, going some way toward meeting Lib Dem demands for an overhaul of the electoral system.

* Brown's statement cannot disguise the basic maths -- Labour (258) and Lib Dems (57) combined have only 315 seats in the 650-seat parliament, short of a majority. That would mean they would need to gather the support of smaller parties in Scotland, Wales and Northern Ireland to command a majority. Those regional interests could complicate efforts to cut a deficit running at in excess of 11 percent of national output.

* The Lib Dems would be taking a further gamble in throwing in their lot with Labour because it is not known who will lead the party once Brown steps aside. Brown has said he will be gone by Labour's annual conference in September.

* The parallel talks give the Lib Dems greater leverage to extract concessions from the Conservatives. The Conservatives responded to Brown's statement by offering a referendum on a switch to the alternative vote -- a limited form of electoral reform already floated by Labour which falls short of Lib Dem demands for a genuinely proportional system.

* The Conservatives could try to form a minority government if they fail to agree an alliance with the Lib Dems. The Conservatives are 20 seats short of a majority.

* Britain's last inconclusive election in 1974 was followed within 8 months by a second election. Many pundits believe Britons will be asked to vote again within the year.

Copyright 2012 Thomson Reuters. Click for restrictions.

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