(Reuters) - Britain is heading towards a hung parliament after Thursday's national election, fuelling uncertainty about the country's future in the European Union, its economic policy, and Scotland's place in the United Kingdom.

Four days before Britain's closest election in decades, the prospect of no single party winning an overall majority and which alliances could be struck with smaller parties afterwards is dominating debate.

Opinion polls show Prime Minister David Cameron's Conservatives and the opposition Labour Party, led by Ed Miliband, neck and neck, with neither on track to win control of the House of Commons on their own.

"No one is going to win. I know David Cameron and Ed Miliband go around robotically that they're going to win. They're not, and they know it," said Liberal Democrat leader Nick Clegg, who in 2010 became junior partner in a coalition with the Conservatives. He was speaking on BBC television.

If Cameron is re-elected, he has promised to hold an in-out EU membership referendum in 2017, while the rise of Scottish nationalists - who lost an independence referendum last year - is generating continued uncertainty about Scotland's place in the United Kingdom.

The uncertain outcome of Thursday's election reflects the fact that Scottish nationalists threaten to overrun Labour in an area it once considered a stronghold, and the rise of the anti-European Union UK Independence Party (UKIP) which risks splitting the Conservative vote in its English heartlands.

Labour and the Conservatives are likely to win less than 300 seats each, short of a majority in the 650-seat parliament. The Scottish National Party (SNP) could take over 50, the Liberal Democrats between 20 and 30, and UKIP less than 10.

The two main parties are refusing to publicly countenance a second-successive hung parliament, something that would be taken as evidence that their decades-old grip on power has been permanently weakened.


Still, UKIP leader Nigel Farage said on Sunday the country's winner-takes-all electoral system, which favors the two main parties because it gives no representation to second- and third-placed candidates, was "bankrupt".

His view is widely shared among smaller parties and calls for electoral reform are likely to grow louder after the election. Neither of the two main parties have much appetite to change it however.

Regardless of who emerges as the largest party, talks to form the next government are expected to take longer than the five days of negotiations that resulted in the 2010 coalition. More parties are likely to be involved, faced with less clear cut coalition maths to guide them.

Labour's most likely route to power is with the support of the SNP, which eventually wants independence for Scotland, even though both parties have ruled out a formal coalition. Labour has said it does not want an informal deal with the SNP either, but many analysts think it could reconsider after the election.

The Conservatives are most likely to turn to Clegg's centrist Lib Dems to reprise the current government. But that would only be viable if Clegg and Cameron exceeded expectations and won enough seats between them to form a majority. Clegg is also open to a deal with Labour.

As well as challenging the orthodoxy of British politics, the complex array of scenarios that could unfold after May 7 is being closely studied by financial markets, with Labour and the Conservatives offering starkly different plans to manage the finances of the world's fifth-largest economy.

Although there are few signs yet of UK stocks, bonds or broader asset markets taking fright at the prospect of hung parliament, currency markets are starting to show some background anxiety.