LONDON, MAY 2: Britain's ruling Labour Party slumped to its worst local election defeat in 40 years on Friday, dealing a blow to Prime Minister Gordon Brown in his first test at the polls since taking over from Tony Blair.

Buffeted by global economic turmoil and bedevilled by party in-fighting, Brown now faces an uphill climb against the resurgent Conservatives in the next parliamentary elections due in 2010 at the latest.

“If the economic crisis continues through 2010, Brown’s dead in the water,” MORI pollster Robert Worcester told Reuters.

With two-thirds of the results counted from local councils in England and Wales, BBC predictions put the Conservatives on 44 per cent and Labour on only 24 per cent, one point behind the centrist Liberal Democrats.

After being dealt a damning verdict on his first year in power, Brown said: “It’s clear to me that this has been a disappointing night, indeed a bad night for Labour.”

“My job is to listen and to lead and that is what I will do,” he told reporters after his electoral drubbing.

Gloomy economic news on Friday added salt to Brown’s wounds. Brown served as finance minister for a decade before becoming prime minister last June.

British house prices suffered their biggest annual fall in 15 years in April, data from Britain’s biggest mortgage lender HBOS Plc showed.

“This is a dark cloud that is getting ever darker for the economy, “ said BNP Paribas economist Alan Clarke.

The Conservatives, the once dominant party of Margaret Thatcher and Winston Churchill, were in buoyant mood after suffering more than a decade in the political wilderness.

Conservative leader David Cameron said: “I think this is a very big moment for the Conservative Party, but I don’t want anyone to think that we would deserve to win an election just on the back of a failing government.”

Bookmakers slashed the odds on a Conservative victory in the next parliamentary election to the shortest price for a decade.

John Curtice, politics professor at Scotland’s Strathclyde University, said the Conservatives fared better than expected while Labour had done even worse than forecast.

Brown enjoyed a brief honeymoon with voters after he took over from Blair. But he has since been beset by party mutinies, economic turmoil and industrial unrest.

Attention now turns to London where two political mavericks are battling for the job of mayor in the closest election since the office was created eight years ago.

Victory for Conservative candidate Boris Johnson in the race would be a major boost for Cameron. A win for Labour incumbent Ken Livingstone would provide some relief for Brown.

Turnout was expected to have been high, which pollsters said could favour Livingstone. The result is due later on Friday.

“Ken Livingstone stands between Gordon Brown and . . . a disaster,” Curtice said.