(Reuters) - Ahead of the May 7 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 research note 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.
The Scottish National Party, which has drawn a sharp rise in support following last year's independence referendum, is expected to get about 47 percent of Scottish votes this election compared with 20 percent vote in the 2010 elections, according to polls over the past month.
The Labour Party may fetch only about 27 percent of the vote share, compared with 42 percent 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.
Reporting by Ankush Sharma in Bengaluru; Editing by Leslie Adler