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.
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"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.
"There's quite a strong across-the-board support for UKIP but one of the problems they face is that although their support is broad is quite diffuse so the question will be whether they can concentrate in enough seats to make a real breakthrough. They're likely to get between six and 10 seats but can they go further?"
The result raises the stakes for other political parties in the U.K, according to Pawel Swidlicki, policy analyst at think tank Open Europe.
"If UKIP can win that seat, they could be now undermining the argument that a vote for UKIP is a wasted vote," told CNBC on Friday.
"A strong UKIP showing in the general election could raise the possibility of a Brexit but that is still a long way off, in my view. In any case, the next election will be very unpredictable and UKIP's performance will put extra pressure on all the other parties."
The rise of right-wing parties such as UKIP, which advocates strict curbs on immigration and claims the EU has stripped the U.K. of any say over its national life, has been mirrored throughout Europe.
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UKIP argues that European red tape and trade regulations are hurting Britain's businesses and that they would be better off with free trade with the EU rather than the current political union.
In the note entitled "Brexit would be bad for the U.K.," Schmieding and Schulz said that hoped-for competitiveness gains from EU exit are impossible to achieve.
"EU membership neither prevents, nor guarantees competitiveness. Ditching the EU would mean the U.K. dreaming up its own regulations, and U.K. politicians have as much capacity to come up with silly rules as leaders elsewhere," they said.
The economists believed that when push comes to shove, the U.K. would stay within the EU. "Support for EU membership is at a 23-year high. Brits seem to dislike taking huge risks at the ballot box. And EU leaders should give the UK just enough concessions to keep it in. But an EU exit would be very costly in our view, so we cannot be complacent about how those risks evolve."
- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.