The UK Independence Party's (UKIP) latest triumph at the ballot box brings a potential exit by the U.K. from the European Union (EU) just that bit closer, analysts have warned CNBC.
The anti-European party won a by-election in Rochester and Strood in the south east of England late Thursday, securing a second parliamentary seat. Mark Reckless, who triggered the by-election after defecting from the ruling Conservative party to UKIP, romped home with an almost 7 percent majority.
The by-election is a blow for Prime Minister David Cameron and his Conservative party who are feeling the pressure as anti-European and -immigration sentiment among voters grows. Cameron has promised a referendum on EU membership should his party win a general election in May 2015.
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With public anger borne out by the Rochester result, the outcome is not likely to placate businesses and investors in Britain who fear that exiting the EU – a possibility dubbed a "Brexit" – could be fatal for the country's economy, trade and growth.
Holger Schmieding, Christian Schulz and Robert Wood, the chief, senior and senior UK economist respectively at Berenberg Bank, said in a note Friday that the Rochester vote -- a "by-election Prime Minister Cameron was not supposed to lose" – could herald a destabilization of the U.K.'s political system and makes a Brexit more likely.
"UKIP's gains raise the chance of a hung parliament after the May 2015 general election [but] a Brexit is the bigger risk from UKIP in our view. We watch the Brexit risk carefully because it would be costly, markets would react very badly to it and the exit risk is rising with every gain UKIP make," they said.
UKIP was likely to get between six and 10 seats at the next election in May, Andrew Lilico, director and principal at consultancy Europe Economics told CNBC.