Ahead of the 7 May election, in which Labour Party and Prime Minister David Cameron’s incumbent Conservative Party are neck-and-neck in polls, Deutsche Bank said in a research note that the Labour Party is most likely be able to form the next government.
Deutsche Bank’s chief economist, George Buckley, said in the document that all polls indicate a hung parliament, meaning that a three-party coalition will be required to form a government, and Labour is expected to win support from the Scottish National Party (SNP).
SNP, which has drawn a sharp rise in support following last year’s independence referendum, is expected to get about 47% of Scottish votes this election compared with 20% vote in the 2010 elections, according to polls over the past month.
The Labour Party may fetch only about 27% of the vote share, compared with 42% in the 2010 elections in Scotland, polls show.
The outcome of such a mandate for Labour may result in increased taxes, less austerity and likely a slower reduction in the deficit.
If a Conservative-led government is formed, it will press ahead for an EU referendum by 2017, which may present a serious test of the resilience of foreign direct investment to the UK, and would likely depress the currency as a result, Deutsche Bank said in the research note.
Scottish nationalists will try to wrestle full control over taxation and spending from the British government if they win kingmaker position in the general election, Nicola Sturgeon, the SNP leader recently said:
>> Read: Scottish nationalists to seek full fiscal autonomy from UK
Sturgeon has distanced herself from speculation that the party could seek another referendum on independence after the general election.
>> Read: Brexit could force new referendum on Scottish independence
Background
The 7 May UK general election will go a long way towards deciding whether Britain will stay in the European Union, or choose to leave, after forty years of uneasy relations.
A surge in Eurosceptism has firmly pushed the European Union up the political agenda in Britain.
The ruling Conservatives have promised an in/out referendum on EU membership before the end of 2017 if they win the election, placing Europe's future at the centre of the debate.
The UK Independence Party's (UKIP) position on Europe is probably the clearest. They want the UK to leave the European Union as a first step towards regaining Britain's 'lost' national sovereignty.
>> Read our LinksDossier: Voting on Brexit: The issues shaping the UK election
>> Folllow our rolling coverage: Countdown to UK election: A vote on Europe?