David Cameron, UK prime minister, was on course to return to Downing Street on Friday with early election results pointing to a dramatic Conservative victory, but the country he leads is under unprecedented strain after a night of triumph for Scottish nationalists.

Early results supported exit polls forecasts that the Conservatives would win 316 seats, just short of the 323 seats Mr Cameron needs for an effective Commons majority — a much better result that he had dared to expect.

The election results provided a sharp boost to sterling. The pound surged 1.3 per cent to $1.5473, eclipsing an earlier high of $1.5448, as the exit poll at least cut some of the uncertainty that the election has generated in recent weeks.

Meanwhile Labour was predicted to win just 239 seats, suggesting the party was on course for its worst election result since 1987 — a crushing disappointment for leader Ed Miliband, who had believed he was on the brink of power.

Mr Miliband may not survive as party leader after this setback: he believed voters would embrace his centre-left plan and make Britain more equal, but he failed to capture the nation’s imagination.

Early results showed the Scottish National party sweeping the board north of the border in a dismal night for Labour as Jim Murphy, the Scottish Labour leader, lost his seat.

The exit poll suggested the party could win almost every one of the 59 Scottish seats — a result which could have profound implications for the future of the United Kingdom.

The election has highlighted the increasingly fragmented nature of the UK with Scotland turning to a leftwing, separatist party and England turning to Mr Cameron’s centre-right Tories.

Initial results in seats like Swindon North, Battersea and Nuneaton showed the Conservatives easily holding off the Labour challenge, with the Lib Dem vote collapsing across the country.

By 2.45am Labour admitted that “David Cameron could end up in Downing Street” on a night of despair, encapsulated by the defeat of Douglas Alexander, the party’s campaign chief, at the hands of a 20-year-old SNP student.

A desolate Neil Kinnock, former Labour leader, said his party appeared set for a “very disappointing night”, reminiscent of his own defeat in 1992 when voters declined to tell pollsters they were preparing to vote Tory.

Nick Clegg sparked speculation over his own future as leader of the Liberal Democrats after what he called “a cruel and punishing night” for his party which was on course to lose the vast majority of its parliamentary seats.

Mr Clegg, deputy prime minister in the coalition government of the last five years, won his own seat of Sheffield Hallam, albeit with a much reduced majority. But, he accepted the results had “profound implications for the country” and “obviously” for his party adding that he would address his Lib Dem colleagues about his future later on Friday morning.

The anti-EU UK Independence party was on course to become the third biggest party in terms of national support, but was expected to win two seats at most under Britain’s first-past-the-post voting system.

If Mr Cameron ends up close to the 323-seat winning line, he could try to govern as a minority administration, knowing that it is unlikely that all other parties could unite in the Commons to defeat him on any issue.

If the Conservatives ended up with fewer than 310 seats he might need to strike a deal — perhaps informally — with the Democratic Ulster Unionists and perhaps a shrunken cohort of Lib Dems.

Either way, Mr Cameron looks set to be in a position to deliver his promised referendum on Britain’s EU membership, heralding months of negotiations in Brussels to secure a new deal for the UK.

The 2015 election could also herald a further loosening of the ties that hold the UK together, as the SNP continued to strengthen its grip on politics in Scotland.

In spite of losing the Scottish independence referendum by 55-45, the SNP surge at this election could lead to further demands for a more federal settlement in the UK and add to pressure for a second referendum.

Meanwhile Conservatives claimed that Nigel Farage, the charismatic leader of Ukip, might struggle to win Thanet South, the seat he is contesting. He said he would resign as party leader if he failed to get elected.