New Prime Minister David Cameron's Conservatives and the smaller Liberal Democrats struck a coalition agreement early on Wednesday in a deal between two usually ideologically opposed parties that critics say will lead to future instability.
"This is going to be hard and difficult work. A coalition will throw up all sorts of challenges. But I believe together we can provide that strong and stable government that our country needs," Cameron said in his first speech as prime minister.
The agreement, reached five days after an inconclusive election, ended 13 years of rule by the center-left Labour Party under Tony Blair and his successor Gordon Brown.
The partnership will have to tackle a record budget deficit running at more than 11 percent of GDP. The coalition is expected to implement Conservative plans to cut six billion pounds of spending this financial year, earlier than the Liberal Democrats, or Lib Dems, had campaigned for.
"What it (the joint agreement) does ... I think is properly balance the need to take some fairly aggressive action to control the budget deficit ... but also to make sure that economic recovery is protected," said Lib Dem politician David Laws, one of the key negotiators during the coalition talks.
The Liberal Democrats were celebrating after decades spent in the shadow of Labour and the Conservatives.
"There will of course be problems, there will of course be glitches. But I will always do my best to prove new politics isn't just possible, it is also better," Liberal Democrat leader Nick Clegg, who will be deputy prime minister, told reporters.
Markets welcomed the agreement, hopeful that a government led by the center-right Conservatives will take swift action to cut the country's debts.
Though critics suggest the coalition will be unstable, others pointed to successful coalition deals elsewhere.
"At the local level these sort of arrangements ... have been going on for some time and seem to work very well. I don't see why it wouldn't work on a larger scale," said Sir Moir Lockhead, Chief Executive of British transport operator FirstGroup.
PROBLEMS AHEAD?
Cameron, a 43-year-old former public relations executive, took over as prime minister on Thursday evening after Brown admitted defeat in efforts to broker a deal with the Lib Dems.
He is Britain's youngest prime minister in almost 200 years.
The Liberal Democrats have more in common with Labour in policy terms, but talks to form what the media called a "coalition of losers" swiftly fell apart.
Conservative politicians took to the airwaves on Wednesday morning to highlight their new good ties with the Lib Dems.
"We formed an excellent working relationship between the parties ... I think we will conduct government in that way as well," said William Hague, a former Conservative leader who will be the new foreign minister.
The Conservatives are the largest party in parliament after last week's election but fell 20 seats short of an outright majority. Combined with the Liberal Democrats, they will have a majority of 76 seats.
The prime minister's office said late on Tuesday there would be five Liberal Democrats in cabinet in total, including Clegg.
It did not name the other four ministers but there were reports Vince Cable, the well regarded Liberal Democrat Treasury spokesman, would have a role overseeing banking and business.
George Osborne, a close friend and ally of Cameron, will become the new Chancellor of the Exchequer (finance minister).
Some in the finance industry have expressed doubts about Osborne because he is untested and takes over an economy emerging from the worst recession since World War Two.
Media reports said Liam Fox would be defense secretary.
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