The hue and cry of Britain’s general election obscures an inconvenient truth. The first peacetime coalition since the 1930s is likely to be followed by another inconclusive election. The old world of two party politics delivering decisive single party government may be over.

David Cameron, prime minister, and Ed Miliband, the Labour party leader, still hope they can snatch outright victory on May 7. Voters appear unmoved. This has been a dispiriting campaign, where a few dozen swing constituencies have been targeted like battleground states in a US presidential election. For Cuyahoga County, Ohio, read Solihull, West Midlands.

A tactical, data-driven campaign mobilising core supporters ignores how Tony Blair and, more recently, Angela Merkel in Germany reached out to the centre ground and won three successive elections. The lesson should still hold true in Britain, despite the fragmentation of politics represented by the rise of the Scottish National party and the europhobic UK Independence party.

Five years ago, the prospect of coalition government attracted dire predictions of instability in markets and gridlock at Westminster. Neither proved true. The Conservative-Liberal Democrat coalition has shown European-style cohabitation can work. Curiously, Mr Cameron has not trumpeted its successes. He has preferred to wage a campaign of fear. Labour, he argues, would prove untrustworthy on the economy; and a Labour government would be held hostage by a separatist Scottish National party. The risk of a cross-border leftist alliance is not negligible; but even some Tories worry that its invocation encourages English nationalism.

Labour’s campaign has also played relentlessly to its core vote. Mr Miliband has belatedly signed up to balance the budget in the next parliament. Fearful of public sector unions, he has not specified where heavy spending cuts would fall. He has rarely met a market he did not consider to be broken. Only Nick Clegg, the embattled Liberal Democrat leader, has occupied the centre ground. He has argued persuasively that the Lib Dems contributed to sensible fiscal consolidation and tempered the wilder Tory impulses, particularly on Europe.

The Financial Times has no fixed party political allegiances, but we have a clear vision of the priorities for the next administration.

In depth UK general election The UK faces its closest and most unpredictable general election in memory on May 7

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The economic challenge goes beyond cutting public spending. The government must support enterprise and job creation. The dependence on credit-fuelled consumer spending and London-based financial services must be reduced. Britain’s productivity gap must be narrowed, by long-delayed investment in infrastructure, education and housing. A new constitutional settlement is needed, one that preserves the union and transfers powers rationally and fairly to the nations and regions of the UK. On Europe, it is time for constructive engagement. A new relationship would recognise the UK is not part of the monetary core but is still a vital member of the European family of nations.

The choice is therefore between a dynamic, flexible and open economy delivering higher living standards for all, and a pinched nationalism that clings to the past. Little England or Great Britain.

The UK is in far better shape than in 2010. Growth has picked up sharply. The numbers of those in work are at an all-time high. About 2m new jobs have been created. But austerity spells a joyless recovery and the public finances remain fragile. The deficit is shrinking to an expected 4 per cent of national output this year. This is still too high but better than the near 12 per cent when the coalition took over.

Britain needs a strong economy to fund the National Health Service and an ageing population. But a strong economy alone does not guarantee political stability. Today, the integrity of the United Kingdom remains at stake. The failure of the Scottish National party to win last September’s referendum on independence ought to have settled the issue for a generation. But if the SNP wins most of the 59 seats in Scotland, it could hold the balance of power at Westminster. At the very least, this will complicate new constitutional arrangements between England, Scotland, Wales and Northern Ireland; at worst, it could stoke separatist fire north and south of the river Tweed.

The second constitutional question turns on Europe. Should the Conservatives win an outright majority, Mr Cameron has pledged to re-negotiate the terms of UK membership and hold an in-out referendum within two years. His move threatens to consume the first two years of a Tory government. It could ultimately push Britain out of the bloc, a seismic change in the country’s relationship with its chief trading partners and for the balance of power in the EU itself. It might also break the Tory party.

The preoccupation with Europe obscures a more troubling development. Britain’s standing in the world has diminished. Her Majesty’s armed forces have shrunk, and her diplomats reduced to handing out export brochures for business.

Two bloody wars of choice, in Afghanistan and Iraq, have carried a high price. Politicians on the left and right are increasingly looking inward. In Europe’s first post-cold war crisis in Ukraine, Mr Cameron has been a bystander, despite the UK being a signatory to the 1994 Budapest Memorandum covering Ukraine’s nuclear disarmament and territorial integrity. His insistence on spending 0.7 per cent on overseas aid sits ill with his refusal to commit to 2 per cent of GDP for the military.

The Conservatives’ economic record ought to provide a winning hand. The mix of a loose monetary policy and a tight fiscal policy has worked. Mr Cameron and his chancellor George Osborne, supported by Mr Clegg, showed political courage to tackle the public finances and shrink the state. The Tories have also driven two promising shifts in Britain’s political discourse: the challenge to the benefits culture and the re-introduction of much-needed rigour into the country’s schools.

Labour has been more competitive than expected. Mr Miliband has been vilified by the Tories, but he has stuck to his guns on Europe, refusing to cave in to demands for a referendum. His willingness to stand his ground deserves credit.

Yet this cannot conceal the fundamental weakness in Labour’s plans. Mr Miliband is preoccupied with inequality. His prescription is an increase in taxes such as restoring the 50p level for high earners and imposing an ill-conceived mansion tax.

Mr Miliband has too often found himself on the wrong side of the argument. He promised to freeze energy prices shortly before world prices collapsed. An already heavily regulated banking sector and private landlords are now in his sights. He has stepped too far away from the New Labour position that markets can be harnessed to progressive outcomes. At times, he appears to be fighting his campaign in the style of France’s François Hollande in 2012. True, Mr Hollande secured victory but at the price of a weak economy and an exodus of talent, often to London.

At this delicate moment, the best outcome would be a continuation of the 2010 coalition between the Conservatives and Lib Dems. Mr Clegg’s party has proved a responsible partner in government. Tough decisions, such as the reversal of his party’s stance on university tuition fees, will hurt the party. The Lib Dems would be more awkward in a second term coalition. It is also far from clear whether they will have enough seats to be kingmakers with either the Tories or Labour.

Voters must decide not just on the party but also on the combination which would have the best chance of forming a stable, reform-minded government. The country would benefit from the countervailing force of Lib Dem moderation at Westminster. In seats where the Lib Dems are the incumbent or the main challenger, we would vote tactically for them.

Ultimately, however, there is only one leader and one party that can head the government. There are risks in re-electing Mr Cameron’s party, especially on Europe. But there are greater risks in not doing so. Its instincts on the economy, business and reform of public services are broadly right. Mr Miliband has not offered a credible economic prospectus and would apply a brake on enterprise. In the circumstances, the FT would like to see a Conservative-led administration.

Letters in response to this editorial:

Cameron and co are unable to admit that they are wrong about austerity / From Bill Eadie

Miliband is on the money with focus on inequality / From Fran Bennett