Britain's first coalition government since 1945 started to sketch out its main policy goals on Wednesday with a core task being to tackle the country's record budget deficit.
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 centre-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.
"... we're going to undertake long-term structural reforms of the banking system, of education and of welfare so that we have an economy that works for everyone," new finance minister George Osborne told reporters.
Cameron and Lib Dem leader Nick Clegg, who will be deputy prime minister, were expected to make an announcement at the prime minister's residence in Downing Street at 1315 GMT.
"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 Lib Dems 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," Clegg told reporters.
Markets welcomed the agreement, hopeful that a government led by the centre-right Conservatives will take swift action to cut the country's debts. Gilt futures jumped and sterling enjoyed a strong performance overnight, losing some ground later to trade broadly steady against the dollar.
The Conservatives are traditionally seen as hawkish on defence, and stocks in the sector were up 2.35 percent on the FTSE 350 index.
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.
Conservative politicians took to the airwaves on Wednesday morning to highlight their new good ties with the Lib Dems.
William Hague, a former Conservative leader who will be the new foreign minister, told the BBC there were no major differences between the two parties on Afghanistan, where Britain is fighting an unpopular war.
He also said neither party was in favour of handing more powers to the European Union. The EU was seen as a stumbling block to a coalition deal between the pro-EU Lib Dems and the anti-EU Conservatives.
"All British governments sometimes face difficulties over European policy, but given the discussions we have had and the agreement that I have just outlined, we certainly don't start off with it as a difficulty," Hague said.
The Conservatives are parliament's largest party after last week's election but fell 20 seats short of an outright majority. With the Lib Dems, 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.