June 9 (Bloomberg) -- Prime Minister Gordon Brown will remain at the helm of Britain’s ruling Labour Party after beating back a rebellion by members unhappy over its worst-ever defeat in voting for the European Parliament.

Brown met his new Cabinet today after confronting dissidents at a two-hour closed-door meeting in Parliament in London late yesterday. Brown won the support of most Labour lawmakers by promising to make unspecified changes to his leadership style and agenda, said six who attended.

After “the coldest electoral shower imaginable,” the Labour Party has “settled” on its leader, Foreign Secretary David Miliband said in an interview with the BBC today.

Although Brown’s supporters warned that a leadership fight would prompt a general election that Labour would almost certainly lose, the prime minister’s hold on power remains fragile. The wounds inflicted may be reopened if the party’s poll ratings don’t improve or if Brown presses ahead with controversial plans to clamp down on welfare benefits and sell a stake in the postal service.

“The sharks are no longer circling, but they haven’t gone away,” said Ivor Gaber, a professor of political campaigning at City University in London. “At the moment, he is still the most likely person to lead Labour into the next election. But it is by no means certain.”

Market Reaction

The pound rose for a second day, gaining as much as 0.8 percent to $1.6176, as Brown’s political survival added to a survey showing the U.K. housing market is “stabilizing.”

“I know I need to improve,” Brown told the meeting, according to his spokesman. He shrugged off calls for his resignation, saying, “You solve the problem not by walking away but by doing something about it.”

Tomorrow, lawmakers vote on a motion proposed by opposition parties calling on Brown to hold a general election immediately instead of waiting until the deadline a year from now. If a handful of Labour lawmakers rebel or neglect to show up, Brown, who has a 63-seat majority, could lose the vote.

Former ministers Charles Clarke, Stephen Byers and Fiona Mactaggart yesterday joined a list of 19 Labour lawmakers saying Brown should step down after the party finished third in elections for the European Parliament.

Small Rebellion

The size of the mutiny was too small to trigger a leadership contest, and the challenge unified both the Cabinet and most of the party in backing Brown.

While six ministers have walked out of the government, none followed James Purnell in calling for Brown to step aside. Today, Purnell signaled he’d keep his concerns about Brown’s leadership quiet while the party heals itself.

“I’ve got complete respect for people who stayed in the government, who believed that’s the right thing to do,” Purnell said on Sky News. “I love the Labour party and I’m going to remain loyal to it from the back benches. I’m going to work hard most of all for my constituents.”

Unless the prime minister quits, 70 Labour members of Parliament would have to publicly call for him to go before the party could consider replacing him. More than 300 attending the meeting in a packed committee room banged tables and cheered for Brown when he arrived to speak.

Election Concerns

“Labour MPs have chosen to accept the inevitability of being slaughtered in May next year rather than this autumn,” said Bill Jones, professor of politics at Liverpool Hope University. “To survive for 11 months is better than to survive just for three or four months.”

Brown’s standing has withered as disclosures of lawmakers’ personal spending combined with the effects of a deepening recession and rising unemployment. The British National Party, whose constitution permits only whites to join, won its first two seats in the European Parliament.

The challenge to Brown from his allies is the toughest for a sitting premier since John Major called a leadership contest to face down rebels in his Conservative Party in 1995.

At the time, the party was divided over its position on Europe, and Major resigned as leader of the party, telling his detractors to “put up or shut up.” He won the contest that followed but lost the election two years later to Labour’s Tony Blair, who handed the top job to Brown in 2007.

“The difference between now and the 1990s is that Major faced organized factions within the party that presented a clear alternative,” said Stephen Driver, who teaches politics at London’s Roehampton University. “It was about fundamental political issues.”

Personality Problem

This time, the opposition to Brown centers on his personality and leadership style. Caroline Flint quit as Europe minister last week, saying Brown didn’t take her seriously and didn’t include her in Cabinet discussions.

An opinion poll by ComRes Ltd. showed that Home Secretary Alan Johnson would be more popular than Brown, 58, and could deprive the Conservatives of the votes they need to command a majority in Parliament.

With Johnson as Labour leader, the opposition would fall six seats short of a majority. Against Brown, Conservatives would have 74 seats more than all rival parties combined, according to ComRes, which finished its poll of 1,001 adults on June 7. No margin of error was given.

‘Great Support’

About six lawmakers spoke out against Brown at the meeting, though the majority sided with the prime minister, people who attended the meeting said.

“There was great support for Gordon,” George Foulkes, a Labour lawmaker, told journalists outside the meeting. “Charles Clarke spoke, and no one even put their hands together.”

Brown’s allies, including Children’s Secretary Ed Balls and Tessa Jowell, organizing the 2012 Olympic Games, stepped up their support.

Ian Austin said the “vast majority of the room was behind the prime minister,” and Stephen Pound said “people recovered their senses” after questioning Brown. Wales Secretary Peter Hain said the party is showing a “capacity to stick by the leader in a crisis.”

“Gordon spoke very, very well and passionately,” Jowell said on Sky News. “There was a mood of people coming together, of remember what being a Labour member of Parliament is about.”

Quentin Davies, a former Conservative lawmaker who defected to Labour the day before Brown took over in 2007, said, “we want to keep the captain on the bridge.”

To contact the reporter on this story: Kitty Donaldson in London at kdonaldson1@bloomberg.netGonzalo Vina in London at gvina@bloomberg.net

Last Updated: June 9, 2009 07:07 EDT