New Prime Minister David Cameron’s Conservatives and the smaller Liberal Democrat party struck an agreement on Wednesday to form Britain’s first coalition government since 1945.
The agreement between the two parties, reached five days after an inconclusive election, ends 13 years of rule by the centre-left Labour Party under Tony Blair and his successor Gordon Brown.
The untested partnership will have to clean up public finances, with a record budget deficit running at more than 11 percent of national output.
Markets welcomed the agreement, hopeful that a government led by the centre-right Conservatives will take swift action to bring down spending.
“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.