Britain looks set for a hung parliament where no individual party has overall control for the first time since 1974.
Below is a look at a few of the scenarios that could play out:
CONSERVATIVE MINORITY GOVERNMENT
* Probability: possible
If the Conservatives fall short of a parliamentary majority but gain the most seats, as seems likely given the results of the nearly 90 percent of seats so far declared, they will be in pole position to form the next government.
A Sky/ITV/BBC exit poll published immediately after polls closed on Thursday night suggested the Conservatives would win 305. They need 326 seats for an outright majority.
A minority government — such as that in Scotland — is seen the most likely option in this case as it is quicker to form.
In a minority government, the Conservatives would need to strike deals with parties on a legislation-by-legislation basis. If they do not strike a deal with the third-placed Liberal Democrats, they could seek support from an assortment of fringe parties.
However, this outcome could be delayed as, constitutionally, the ruling Labour party has the first right to try to form a government, as the incumbent party. It is expected to struggle to do this (see below).
* Likely market reaction: this would depend on how survivable the minority Conservative government would be, and how seriously it looked set to tackle the budget deficit, equivalent to 11 percent of GDP. Some analysts argue a Conservative minority government would still be enough to produce a small sterling rally in its own right. Others worry it might struggle with its internal differences over Europe in a similar manner to John Major's Conservative government before 1997.
CONSERVATIVES OR LABOUR MINORITY GOVERMENT WITH LIBERAL DEMOCRAT SUPPORT
* Probability: possible
Liberal Democrat Nick Clegg — leader of the third largest party — has distinguished himself from previous Lib Dem leaders, who would never have done a deal with the Conservatives, by portraying himself as open to a deal with either of the main parties.
The key to a deal with either side would be agreement on the Lib Dems' four priorities. Labour is more likely to shift some ground on voting reform, and is already promising minor changes, although they fall short of Lib Dem demands.
The Lib Dems could prop up either Labour or Conservatives in a deal short of a coalition, in return for concessions on its other demands if agreement on voting reform cannot be reached.
The exit poll, though, suggests the Lib Dems have not done as well as many predicted and could have a weaker negotiating stance than previously thought. At present, they and Labour combined would not command a majority in the House of Commons.
* Likely market reaction: the most important issue for markets will be how quickly such a deal is worked out. If it becomes clear the Lib Dems will not block a budget, markets will be reassured. If horsetrading continues for a prolonged period of time, markets will sell off.
LABOUR RULES ALONE AS MINORITY GOVERNMENT
* Probability: very unlikely
The exit poll predicts Labour winning 255 seats in the 650-seat House of Commons. They would need support from a wide array of parties to push through their legislative programme, making ad hoc deals on individual pieces of legislation incredibly complex.
* Likely market reaction: the main market worry would be how survivable a minority Labour government would be, and how much influence trade unions — and MPs allied to them — would have. Investors would fear a minority Labour government would be slow to tackle public spending, boosting worries of a credit rating downgrade and wider market sell-off. But prompt action — or even simply promises of action — might reassure them.
LABOUR AND LIB DEMS FORM COALITION GOVERNMENT
* Probability: unlikely
As a centre-left party the Lib Dems are closer to Labour than the Conservatives. Labour and the Lib Dems worked in coalition for eight years in the devolved parliament in Scotland between 1999 and 2007, so there is precedent for an alliance.
But Clegg has been highly critical of Gordon Brown throughout the campaign, and is opposed to many Labour measures such as personal identity cards which Lib Dems argue encroach on civil liberties. That makes a formal alliance politically embarrassing and potentially impossible, at least as long as Brown remains leader.
As noted above, a combination of the two parties would also not represent a majority.
There are also procedural obstacles. A formal coalition would have to be approved by a special assembly of Lib Dem members, whose approval cannot be assumed in advance.
* Likely market reaction: negative. Such a coalition would be seen as weak and lacking a proper popular mandate. However, Lib Dem finance spokesman Vince Cable, a former chief economist for Shell, is widely respected.
Some have even suggested that Clegg could rule as Prime Minister of such a coalition government although this is unlikely.
CONSERVATIVES AND LIB DEMS FORM COALITION GOVERNMENT
* Probability: very unlikely
Although Clegg has positioned his party as neutral between Labour and Conservatives, he has not carried his members or members of parliament with him. Most would be very uncomfortable joining a formal alliance with the centre-right Conservatives and such a move could split the party.
Again, the special assembly required to agree a coalition would be very unlikely to vote in favour — unless, perhaps, full proportional voting was promised. But that is a concession the Conservatives appear equally unlikely to offer.
* Likely market reaction: some analysts argue this coalition formation is likely to address the deficit faster than a Lib-Lab pact, which would be positive for markets. However, others argue it might be particularly unstable, which would be negative. Among other factors, a Lib-Con pact would have to reconcile deeply competing positions on Europe.
