Exit poll: British Prime Minister Theresa May is short of a majority, set to win 314 seats

LONDON, June 8 (Reuters) - Prime Minister Theresa May's Conservatives will fail to win a parliamentary majority in Britain's election, according to an exit poll on Thursday, a shock result that would plunge the country into political turmoil and could delay Brexit talks.

The exit poll predicted the Conservatives would win 314 seats in the 650-member parliament and the opposition Labour Party 266, meaning no clear winner and a "hung parliament."

The BBC reported that 76 seats appeared too close to call.

Until the final results become clear, it is hard to predict whether May has a chance of surviving as prime minister and who might end up leading the next government and steering Britain into divorce talks with the European Union.

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"MAYHEM" screamed the headline in the tabloid Sun newspaper. "Britain on a knife edge," said the Daily Mail.

Senior Conservatives were quick to say exit polls had been wrong in the past. In 2015, the exit poll suggested they would fall short, but when the actual results came in they had a slim majority.

Sterling fell initially by more than two cents against the U.S. dollar as markets digested the prospect of extreme political uncertainty and even the risk of a second election this year, though the currency later recovered some ground.

The exit poll pointed to an extraordinary failure for May, who was enjoying opinion poll leads of 20 points and more when she called the snap election just seven weeks ago.

By putting her fate in voters' hands, three years before an election was due, she had hoped to secure a much stronger mandate that would boost her in complex negotiations on the terms of Britain's EU departure and its future trade relationship with the bloc.

Should she be forced to step down as prime minister, less than 11 months after landing the job, that would make her tenure the shortest of any British premier since the 1920s.

Her poll lead shrank over the course of the campaign, during which she backtracked on a major proposal on care for the elderly, opted not to debate her opponents on television and faced questions over her record on security after Britain was hit by two Islamist militant attacks that killed 30 people.

May was widely derided for endlessly repeating her slogan of "strong and stable leadership" despite her u-turn on the care policy. She gave few policy details and appeared mostly at tightly controlled events. Some critics nicknamed her "the Maybot."

"COMPLETELY CATASTROPHIC"

By contrast, Labour leader Jeremy Corbyn, a veteran socialist who had initially been written off as a no-hoper, was widely deemed to have run a strong, policy-rich campaign that enthused many followers.

If the exit poll is correct, Corbyn could attempt to form a government with smaller parties which, like Labour, strongly oppose most of May's policies on domestic issues such as public spending cuts.

If Labour does take power with the backing of the Scottish nationalists and the Liberal Democrats, both parties adamantly opposed to Brexit, Britain's future will be very different to the course the Conservatives were planning and could even raise the possibility of a second referendum.

The exit poll forecast the Scottish National Party (SNP) would win 34 seats, the center-left Liberal Democrats 14, the Welsh nationalist party Plaid Cymru three and the Greens one. Other parties were projected to win 18 seats.

"If the poll is anything like accurate, this is completely catastrophic for the Conservatives and for Theresa May," George Osborne, who was the Conservative finance minister from 2010 to 2016 when he was sacked by May, said on ITV.

Political deadlock in London could derail negotiations with the other 27 EU countries ahead of Britain's exit from the bloc, due in March 2019, before they even begin in earnest. Brexit talks are scheduled to start on June 19 but could now be delayed, a source of major uncertainty and concern for investors.

"The market will be praying that this exit poll has got it wrong," said currency analyst Lee Hardman of Japanese financial MUFG in a note.

Japanese bank Nomura said that based on the exit poll and on the results in the first two constituencies to declare, its election model suggested the Conservatives would end up winning 331 seats, a slim majority. However, it said that it would be able to produce a more accurate forecast when 10 percent of results were in, which will be around 0100 GMT.

For May, who went into the campaign expecting to win a landslide, even a narrow win later in the night would leave her badly damaged.

"It's difficult to see, if these numbers were right, how they (the Conservatives) would put together the coalition to remain in office," said Osborne.

"But equally it's quite difficult looking at those numbers to see how Labour could put together a coalition, so it's on a real knife edge."

BREXIT IN LIMBO?

May herself had said during her campaign: "It's a fact that if we lose just six seats, we will lose our majority and Jeremy Corbyn will become prime minister," predicting that the Scottish Nationalists and Liberal Democrats would back him.

Whilst this was campaign rhetoric designed to drive support for her party, it also suggested she saw little prospect of forming a coalition with other parties, almost all of whom are opposed to her Brexit strategy built around leaving the EU's single market, controlling immigration and escaping the jurisdiction of EU courts.

The center-left, pro-EU Liberal Democrats, who were in coalition with the Conservatives between 2010 and 2015, looked unlikely to go down that route again. They were close to wiped out in the 2015 election.

Their former leader Nick Clegg, who was deputy prime minister during the coalition years, said the party would not prop up a Conservative government.

In Northern Ireland, the Democratic Unionist Party (DUP), a natural ally of the Conservatives, said it would negotiate with the Conservatives if they fell short of a majority, as both parties had common ground.

Any delay in Brexit talks would reduce the time available for what are expected to be the most complex negotiations in post-World War Two European history.

Labour has said it would push ahead with Brexit but would scrap May's negotiating plans and make its priority maintaining the benefits of both the EU single market and its customs union, arguing no deal with the EU would be the worst possible outcome.

It also proposed raising taxes for the richest 5 percent of Britons, scrapping university tuition fees and investing 250 billion pounds ($315 billion) in infrastructure plans.

(Additional reporting by Kate Holton, David Milliken, Paul Sandle, William Schomberg, Andy Bruce, Alistair Smout and Paddy Graham in London, Padraic Halpin in Dublin, writing by Estelle Shirbon; Editing by Mark Trevelyan)