Gordon Brown resigned as prime minister on Tuesday and said Conservative leader David Cameron would take over, ending 13 years of rule by the Labour Party.
The Conservatives won most seats in a parliamentary election last week but fell short of a majority. Labour came second and the Liberal Democrats a distant third.
Both the Conservatives and Labour tried to win Lib Dem support to form the next government during five days of intense negotiations, but it became clear on Tuesday afternoon that Labour had lost and Brown would have to resign.
Sterling held gains against the dollar after Brown announced his resignation, rising 0.8 percent to $1.4972. Government bonds had also rallied earlier on reports that a Conservative/Lib Dem deal was imminent.
“I have informed the Queen’s private secretary that it’s my intention to tender my resignation to the Queen,” Brown told reporters outside his Downing Street office, flanked by his wife Sarah.
“In the event that the Queen accepts I shall advise her to invite the leader of the opposition (Cameron) to seek to form a government. I wish the next prime minister well as he makes the important choices for the future,” an emotional Brown said.
First among those choices will be what to do to reduce Britain’s record budget deficit, which has raised fears that the country could lose its triple-A credit rating and get into debt difficulties.
Markets want a quick resolution to the uncertainty and favour a Conservative-led government because they believe it would move faster and harder to cut the deficit.
Just after his statement, Brown, his wife and their two children briefly posed for photographers before leaving Downing Street, the official prime ministerial residence.
Then Brown was driven to Buckingham Palace where the Queen accepted his resignation.
The sequence of events was in accordance with British constitutional convention.
Brown’s statement made clear that the Conservatives and the Liberal Democrats had secured some sort of power-sharing arrangement, but the exact details were not yet known.
Senior Conservative William Hague, who has been negotiating with the Lib Dems, told reporters minutes after Brown’s statement that he and his team now had recommendations to propose to party colleagues.
Danny Alexander, a Lib Dem negotiator, made similar comments.
“We have completed our discussions in a good atmosphere and are now returning to report back to (Lib Dem leader) Nick Clegg and our parliamentary colleagues,” he said.
The Lib Dems had turned to the Conservatives first, on the basis that they had won most votes and most seats in last Thursday’s election. But Brown threw a spanner in the works on Monday when he said he would step aside in coming months.
The move was aimed at tempting the Lib Dems away from the Conservatives and into an alliance with Labour. Clegg had made it clear during the campaign he did not wish to prop up the unpopular Brown.
(Additional reporting by Michael Holden, Peter Griffiths, Mohammed Abbas, Adrian Croft, Keith Weir and Tim Castle; editing by Jon Boyle)
(c) Reuters 2010. All rights reserved.