BIRMINGHAM, England (Reuters) - Britain's Liberal Democrats, potential kingmakers in an imminent election, said on Saturday they were confident markets would give politicians time to form a government if no party was an outright winner.

David Laws, a senior member of the second largest opposition party, said markets would be patient as long as they were confident that all parties to any post-election agreement were serious about reducing Britain's record deficit.

Laws was involved in coalition talks in the devolved parliament in Scotland a decade ago which took a week to produce a workable administration, a timespan which could unnerve markets if repeated after an inconclusive British vote.

Britain has not had a "hung" parliament, where no party has an overall majority, since 1974.

"What the markets need to know is that those parties and MPs who make up the new parliament have a very strong robust and uncompromising commitment to a credible deficit reduction package," said Laws, a close confident of Lib Dem Leader Nick Clegg and the party's education spokesman.

"If that is the situation, then the markets are perfectly capable of looking through short-term uncertainties about timing."

Opinion polls point to a close result in the election, expected in May, offering the Lib Dems the chance to hold the balance of power.

Markets punished the pound earlier this month after one particularly narrow poll, fearing a hung parliament would lack the will or power to start cutting public spending.

The election is being fought over the economy, with ruling Labour and the opposition Conservatives divided over when to start tackling a record £178 billion ($270 billion) budget deficit.

The Conservatives want to make an early start to reassure markets and protect Britain's credit rating, although they have ruled out "swingeing cuts" this year.

Labour say cuts must be delayed while a fragile recovery remains at risk.

The Lib Dems, who agree with Labour on the need to avoid cutting too soon, stress they would be "guarantors of fiscal responsibility" in any power-sharing arrangement after an inconclusive election.