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Brown ready to stand down early as Labour holds out hope of agreement

Speculation was growing last night that Gordon Brown could tender his resignation as leader of the Labour Party as early as tomorrow.

Senior party figures yesterday urged Mr Brown to face up to the reality of the election result and stand down as soon as possible to enable the party to rebuild in opposition. He could use a meeting of the party's ruling National Executive Committee (NEC) to announce that he will stand down. Harriet Harman, the deputy Labour leader, would take over as interim leader.

Last night allies of Ed Miliband, the Energy and Climate Change Secretary, refused to deny reports that he would stand for the leadership – even though his older brother, David, is also a likely contender for the post. Other likely candidates are Ed Balls, Alan Johnson and Ms Harman herself.

While the focus is on the formal Tory-Liberal Democrat talks, informal contacts were being maintained over the weekend between Labour and Nick Clegg's party through "back channels".

Ministers insist they have far more common ground with the Liberal Democrats – notably over electoral reform and reviving the economy – than the Tories have.

Several ministers believe that Mr Brown's continuing presence in Downing Street is undermining the party's fading chances of negotiating a deal with the Liberal Democrats.

Mr Brown, who remains Prime Minister, met ministers and Labour officials to discuss the party's next steps. They included Lord Mandelson, the Business Secretary, Ms Harman, Ed Miliband, author of the Labour manifesto, and Alastair Campbell, Tony Blair's former press secretary.

Despite the apparent progress between the Tories and Liberal Democrats, Labour is keeping alive the prospect of an anti-Tory "progressive alliance", including Scottish and Welsh nationalists, as well as Northern Ireland MPs. Labour says Mr Brown is ready to negotiate with Mr Clegg if his talks with David Cameron collapse, offering him immediate legislation to hold a referendum on changing the voting system. However, they acknowledge that his presence at the table could prove a stumbling block for Mr Clegg, who has made clear he would not prop up Mr Brown as Prime Minister.

But David Blunkett, the former home secretary, said he believed the Tories and Liberal Democrats would be able to "cobble together an agreement" – and Mr Brown do would "do the right thing" under those circumstances. Mr Blunkett told Sky News: "He has made the right decisions so far for the nation. I'm sure he would make the right decisions for himself and his family and the Labour Party."

Graham Stringer, the MP for Manchester Blackley, yesterday became the third Labour MP to call publicly for the Prime Minister to stand down. Mr Stringer said: "I have probably spoken to 15 Labour MPs since the election, some of whom have been very supportive of Gordon over the last three years, some of whom have been closer to my position, and not one of them thinks he should stay on."

Malcolm Wicks, the former energy secretary, said the party had to be "grown up" and accept it had lost. "We have suffered a major electoral setback and we've just got to take it on the chin. Any prospect of a Labour government staying in power with support from the Liberals in a ragbag coalition depending on assorted nationalists is, I think, ridiculous."

Mr Brown yesterday struck a defiant note in an email to Labour activists: "My resolve has not, and will not, change. I pledged to do everything in my power to fight for the people of this country – to secure the recovery, to protect their livelihoods and to continue to fight for a future fair for all."

Anger is also growing among newly elected Labour MPs that they have not been consulted over the possibility of a deal with the Liberal Democrats.

Leadership contenders

*David Miliband, Foreign Secretary. Powerful backing; high profile in election.

*Ed Balls, Schools Secretary. Will appeal to many on the left, and probably win Brown's support. But riles some others.

*Ed Miliband, Climate Change Secretary. Telegenic and good public speaker. Could draw together both wings of the party.

*Harriet Harman, deputy Labour leader. Shows dedication and energy in the job. Divides opinion.

*Alan Johnson, Home Secretary. Excellent TV performer with eye-catching life story. Probably too old for the post, and not pushy enough.

*Yvette Cooper, Work and Pensions Secretary. Down-to-earth style, and stock has risen. Married to Ed Balls.

*Andy Burnham, Health Secretary. Youthful Blairite.