Polls suggesting Britain could face its first hung parliament in four decades sent jitters through financial markets this week as analysts ponder who will hold power after a looming general election.

Against all the odds, Prime Minister Gordon Brown has dramatically narrowed the gap with opposition leader David Cameron in opinion polls ahead of the election widely expected on May 6.

Cameron's Conservatives consistently boasted double-digit leads against Brown's Labour until the end of January, when figures showed Britain had emerged from its worst recession since World War II.

Now, with the Conservative lead falling away, civil servants and scholars are dusting down old laws and files that form Britain's unwritten constitution to work out exactly what should happen if no one party wins a clear majority.

Experts cannot agree if a hung parliament would be good -- promoting consensus in a system often criticised for its "Punch and Judy" politics -- or bad -- creating uncertainty when the struggling economy needs firm leadership.

The pound slumped below the key 1.50 dollar level Monday following the most recent polls, including a Sunday Times/YouGov survey saying the Conservative lead was now just two points ahead. Others put the lead around five.

"Given where the polls are now, it's very difficult to predict" whether there will be a hung parliament, said Ruth Fox of political research charity the Hansard Society, which publishes a major report on the issue this month.

"It remains a possibility but a lot will depend on what happens in the marginal seats where the Conservatives may be doing better than in other parts of the country because of the amounts of campaigning they're doing there".

Neither Brown nor Cameron has talked publicly about what they would do in a hung parliament.

The centre-left Liberal Democrats, Britain's third party and the likely kingmakers in this scenario, are also playing their cards close to their chest.

Leader Nick Clegg says he wants to see what voters decide before making announcements but has pledged "no backroom deals."

"Our role in it will be constructive," Vince Cable, the party's influential finance spokesman, said Monday of the post-election period. "We will act in the wider national interest."

Everything centres on the parliamentary arithmetic.

There will be 650 seats in the House of Commons up for grabs at the election and one party will need to win at least 326 for a clear majority. Labour currently has 346, the Conservatives 193 and the Liberal Democrats 63.

If after the general election one party has a majority, it will form a government and the party's leader will be prime minister.

If no one party secures an overall majority, then there is a hung parliament. This has not happened since 1974.

Because of the rarity of this scenario and narrowing polls, civil servants have published draft guidelines showing what would happen if there was a hung parliament.

These indicate that in the first few days after the election, Brown could stay in office and try to strike a deal to form a minority or coalition government.

A minority government -- when one party would survive by making a pact with a smaller party or parties -- is seen by experts as a more likely outcome than a coalition, which is rare in Britain. The last example came during World War II.

Under this scenario, Brown would then go before the House of Commons to see if his government could survive a motion of confidence. If it did, it could stay on.

If it did not, the prime minister would be expected to offer his and his government's resignation.

There would then be talks between political leaders and civil servants about which party leader could best command the confidence of the House of Commons.

That person -- probably Cameron -- would then be asked by Queen Elizabeth II to form a government.

As with the first scenario, this could be a minority or coalition government.

The prospect of a hung parliament has already spooked the City of London amid concern over its impact on Britain's economy and budget deficit forecast at 178 billion pounds for the current fiscal year.

"A hung parliament would pose major uncertainties as to whether the government could quickly announce and actually implement enough fiscal consolidation to get the UK back to fiscal sustainability," Michael Saunders of Citigroup said.

"Of the four hung parliaments over the past 100 years, only one lasted more than a year... if the UK election produces a hung parliament, then politicians are likely to stay in pre-election mode, anticipating another election."

But Fox said if there is one and politicians -- whose reputations were mangled by last year's expenses scandal -- can cooperate, it could "change the nature of the way politics is done".

"The public will find that quite beneficial and refreshing," she added.