Theresa May says she will still form Britain’s next government, having visited the Queen after her stunning setback in Thursday’s election.

Ms. May said Friday she will work with “our friends and allies” in Northern Ireland’s Democratic Unionist Party to cling to power and lead the country through tough Brexit negotiations.

“I have just been to see Her Majesty the Queen, and I will now form a government – a government that can provide certainty and lead Britain forward at this critical time for our country,” Ms. May said after her Conservatives failed to cling to a majority.

“This government will guide the country through the crucial Brexit talks that begin in just 10 days and deliver on the will of the British people by taking the United Kingdom out of the European Union.”

With almost all of the results counted, Ms. May’s Conservatives have won the most number of seats in Thursday’s election but have come up just shy of winning enough to form a majority government. The main opposition Labour Party picked up 31 more seats while the Scottish National Party lost 19 of its seats.

The fallout from the result was already being felt around the world with the value of sterling falling as much as two cents against the U.S. dollar before recovering somewhat.

It’s a remarkable turnaround for the Conservatives who had a 20-point lead in the opinion polls when Ms. May called the snap election in April. And it throws into question the government’s ability to negotiate Britain’s departure from the European Union, with Brexit talks set to begin on June 19.

Ms. May has indicated she will try to head a minority government and hang on as Prime Minister.

“At this time more than anything else, this country needs a period of stability,” she said as final results came in early Friday. “And if, as the indications have shown and if this is correct that the Conservative Party has won the most seats and probably the most votes, then it will be incumbent on us to ensure we have that period of stability – and that is exactly what we will do.”

But there were already growing calls for her to resign.

“She wanted a mandate. Well, the mandate she’s got is lost Conservative seats, lost votes, lost support and lost confidence. I would have thought that is enough for her to go,” said Labour Leader Jeremy Corbyn.

Labour’s finance critic John McDonnell said the party was ready to try and form a minority government. “If we can form a minority government, I think we can have a stable government,” he said Friday. “We would be able to produce a Queen’s speech and budget based upon our manifesto, which I think could command majority support in parliament, not through deals or coalitions but policy by policy.”

“It is bad,” said Tory MP Anna Soubry, who was narrowly re-elected. She added that Ms. May should now consider her position. “It was a dreadful night. I’ve lost some excellent and remarkable friends. This is a very bad moment for the Conservative Party and we need to take stock and our leader needs to take stock.”

The Conservatives could cling to power with help from the Democratic Unionist Party which won 10 seats in Northern Ireland and back Brexit. But most analysts say that kind of coalition likely wouldn’t last long as no other party has expressed any interest in working with the Tories.

“This has been a disaster for Ms. May,” said Simon Hix, a professor of European and Comparative politics at the London School of Economics. “And astonishing result for Jeremy Corbyn who everybody thought was a terrible leader for the Labour Party and he has run an amazing campaign.”

Ms. May called the early election saying she wanted a strong mandate to begin Brexit negotiations. And for months she has been insisting that she would opt for a “hard Brexit”, severing all ties with the EU and then negotiating a free-trade agreement. She also said she would walk away from the talks rather than accept a bad deal. That position now appears in disarray as her hand will be clearly weakened even if she manages to win a tiny majority. The EU meanwhile has been united in its Brexit strategy, demanding that Britain pay up to €100-billion, or $151-billion, to cover ongoing obligations like pensions and insisting that Britain recognize the rights of EU nationals living in the country.

“What this suggests is that there will be some instability and it will be harder for the UK government to negotiate a consistent position on Brexit,” said Tony Travers director of the LSE’s Institute of Public Affairs. He noted that it will only take a handful of MPs to reject anything Ms. May does that they don’t like.

The country “could see a fair amount of volatility in the coming days and weeks unless Westminster’s response to this surprise result is remarkably smooth, which is unlikely,” said Lucy O’Carroll, chief economist at Aberdeen Asset Management. “History tells us that hung parliaments are not durable, let alone with Brexit looming large. A request to pause the Brexit negotiations may be one possibility, but it’s not clear how that would work as there’s no precedent. Either way, this result looks to strengthen Europe’s hand in the negotiations.”

Mr. Corbyn and several other party leaders had criticized Ms. May’s “hard Brexit” approach. Instead, Mr. Corbyn said he would negotiate a deal that kept some ties to the EU including retaining membership in the single market, which provides for the free movement of goods, services and people. Many business leaders had also expressed concern about losing unfettered access to the European single market.

The election “puts back on the table membership in the single market,” said Jennifer Hudson, a senior lecturer in political behavior at the University College London. “It’s a vote for a ‘soft leave’ agenda.” She said it is unlikely the EU would delay the start of the talks or relent on any of its negotiating terms, putting Ms. May at even more of a disadvantage.

Ms. May’s own future will also now be in question. When the campaign began, she hoped to capitalize on the Conservative’s big lead in the polls and on the turmoil in the Labour party which had been fighting for months over Mr. Corbyn’s leadership. Ms. May portrayed herself as the “strong and stable” leader who could get the best Brexit deal for Britain and she dismissed Mr. Corbyn as an inexperienced radical.

However, the election campaign quickly turned against Ms. May. The public didn’t focus on Brexit, as much as she’d hoped, and instead concentrated on domestic issues such as healthcare, education and taxation. Ms. May, 60, fumbled the announcement of a key social policy measure for older people, upsetting seniors and forcing her to make a hasty backtrack. She also ran into trouble over her plans to cut immigration, causing confusion with an unclear timetable. And she turned off some voters by refusing to debate Mr. Corbyn and by appearing robotic in a couple of televised town hall style question and answer sessions.

Two terrorist attacks in Manchester and London also exposed her legacy of cutting 20,000 police officers during her six years as interior minister. Mr. Corbyn pounced on the police cuts and many rank and file officers complained about the lack of resources just as the country faced its biggest terrorist threat since the Irish Republican Army in the 1970s.

Meanwhile Mr. Corbyn, 68, struck a chord with his promise to tax the rich, increase spending on healthcare and nationalize services such as the railways and the post office. Mr. Corbyn steadily ate into Ms. May’s lead in the opinion polls as the campaign carried on and by voting day had clearly turned the tables.

It’s unclear how long Ms. May will be able to fend off critics from within her own party, given the disastrous campaign and her weak performance.

“I will expect that the knives will come out inside the party. I think she’s very unpopular inside her own party, I think a lot of the senior figures in the party don’t like her, don’t like what she put in the [party’s election platform], don’t like her advisors,” said Prof. Hix. “She’s more socially conservative than most Conservative MPs, more economically left wing than most Conservative MPs…They will be waiting to try and find an alternative leader.”

Another big loser in the campaign was the Scottish National Party which has been pushing for a second referendum on Scottish independence. The SNP held 56 out of 59 ridings in Scotland but was on course to lose 21 seats. Party Leader Nicola Sturgeon said Scotland needed a second vote on independence because an overwhelming percentage of the population voted to remain in the EU during last year’s Brexit referendum. And she wanted a referendum held as soon as Britain agreed to a deal with the EU, so that Scots could decide whether to remain in the U.K. under those terms.

Early Friday morning Ms. Sturgeon said she was disappointed with the results but pointed out that the party had still “won the election in Scotland.”

Although the party will remain by far the largest in Scotland, the setback will likely hurt the chances of holding another vote on independence, said Prof. Travers. “If it turns out like this, it’s hard to see it as a ringing endorsement for a second referendum,” he said.

PAUL WALDIE – EUROPEAN CORRESPONDENT
LONDON — The Globe and Mail
Published Thursday, Jun. 08, 2017 5:16PM EDT
Last updated Friday, Jun. 09, 2017 8:53AM EDT