Poll shows Labour clinging on to power

Britain's Prime Minister Gordon Brown waves at his arrival to address the Welsh Labour Conference at Swansea in Wales February 27, 2010.

BRIGHTON (Reuters) - Labour could remain the largest party in parliament after an election due in months, a poll showed on Sunday, confirming that the Conservatives' long-held advantage was evaporating.

Seeking to rally party activists, Conservative leader David Cameron said that a fourth successive Labour election win would be a "disaster" for Britain.

"It is an election we have to win because our country is a complete mess and it is our patriotic duty to turn it around and give it a better future," he said in a speech in Brighton.

"Another five years of Gordon Brown would be a disaster for our country,"

The Sunday Times/YouGov poll put support for the Conservatives at 37 percent, while Labour was on 35 percent and the Liberal Democrats were on 17 percent.

But under Britain's first-past-the-post, constituency system, that share of the vote could translate into 317 seats for Labour in the 650-member parliament and give the Conservatives only 263, the Sunday Times reported.

That would enable Brown to head a minority government, needing support from smaller parties to pass legislation.

The prospect of an inconclusive election is sending jitters through financial markets which want to see decisive action to cut a budget deficit of more than 12 percent of GDP.

DEFICIT BATTLE

Cameron said the economy was the key issue and dismissed Brown's claims that swift spending cuts would kill off a fragile recovery from the worst recession since World War Two.

"We say that if you don't do anything, you will see interest rates go up, you will see mortgage rates go up and you will see confidence drained away from our economy and the country will go back into a deeper and darker recession," he said.

The Conservatives have pledged this weekend to cut taxes on company profits, a move likely to cost 3.5 billion pounds per year but which they said can be paid for by scrapping some business tax reliefs.

"Being seen to be the toughest on tackling the deficit hasn't helped recently so I suspect this latest message (company tax cuts) is designed to help the Tories' softer side," said Alan Clarke, economist with BNP Paribas.

"I think they are trying to balance the message."

The Conservative lead was in double figures late last year but has been narrowing in recent surveys which point increasingly to a hung parliament.

The latest poll indicates that allegations in a book that Brown intimidated staff have had no adverse impact on Labour's ratings. Brown has denied the claims.

Labour, expected to call an election on May 6, was delighted with the latest poll.

"It's part of a trend. It shows people more and more questioning David Cameron and more and more suspicious and fearful of the Conservatives as we come up to the election," Welsh Secretary Peter Hain told BBC TV.

"People are really fearful of this almost relish for deep and savage (spending) cuts."

(Additional reporting by Adrian Croft and Kylie MacLellan; editing by Philippa Fletcher)