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The town was originally two villages, Little Marsden and Great Marsden. However, the advent of the railways in the late 19th century resulted in the new town of Nelson being given its Town Charter by Queen Victoria.

There was already a Marsden on the railway network in the neighbouring county of Yorkshire, so the new railway station was called the Nelson Inn, Great Marsden, after the adjacent public house and inn, the Admiral Lord Nelson Inn. The name stuck and the town of Nelson was born.

It grew up as an industrial town in the late 19th and early 20th centuries, with its economy being mostly based upon the textile industry (mainly cotton weaving). The textile industry has now sharply declined, leaving the town with high unemployment. It was also associated with the production of confectionery, including Jelly Babies and Victory Vs. The Package Holiday company Airtours (formally Pendle Travel and recently taken over by the MyTravel Group) began life as an independent travel agent here.

The town is also home to Nelson F.C., a formerly professional football club that spent ten years in the Football League but nows plays in the lower reaches of the semi-professional leagues.

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