'New politics'

Speaking to the Independent, a UK newspaper, Brown sought on Wednesday to cast Labour as the agents of "new politics", highlighting his party's pledge to hold a referendum on voting reform if it won the election.

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The Liberal Democrats, the smallest of Britain's three main parties, have long campaigned for political reform to a first-past-the-post voting system that favours the two larger parties.

However, in the event of a hung parliament, Clegg dampened hopes of a "Lib-Lab" alliance when he said Labour had done nothing on electoral reform and could not be trusted to do so in the next parliament.

"I think there is something frankly desperate about a Labour party and their leader Gordon Brown who now tries to present themselves as agents of reform and progress when for 13 years they have been a stubborn block on reform," Clegg said.

Markets are concerned a hung parliament will be too weak to tackle Britain's record budget deficit.

"It is really uncharted territory for the UK," said Philip Shaw, chief economist at Investec.

"It's interesting that sterling is at a higher level than it was a few weeks ago despite the chance of a hung parliament."

"Perhaps it's showing markets are taking some comfort that there is perhaps a smaller risk that a minority Labour government might soldier on regardless."

Second clash

Sterling hit a two-month high against the euro on Wednesday on hopes for economic recovery after the publication of jobless data.

The number of Britons claiming unemployment benefit fell three times faster than expected in March, but a broader measure of unemployment rose to a 14-year high of eight per cent.

Brown, Clegg and Conservative leader David Cameron will clash again on Thursday evening in the second of three live televised debates.

Clegg can expect a rough ride from his two rivals who are keen to put him in his place.

Philip Cowley, professor of parliamentary government at the University of Nottingham, said: "It's perfectly normal in European politics for parties to slag each other off for the weeks of the campaign and then come together at the end to do a deal."

Britain last had an inconclusive election in 1974.