THE expected uncertain outcome of the General Election will create "significant volatility" for Britain in the financial markets, a leading expert has warned.

Bill O'Neill, head of the UK investment office at UBS Wealth Management, drew a parallel with last year's independence referendum in Scotland.

He said: "Just as they did with Scotland, the markets are saying 'fine, fine, fine' but then as the date approaches they will start to panic a little bit. There will be significant volatility in the second quarter of 2015; it is almost inevitable."

According to new research from the Swiss banking giant, the lack of clarity about the election outcome could exert a downward pull on some UK assets. Particularly troubling, it argued, would be a "double minority" outcome, where two parties still did not have enough seats to form a governing coalition.

It pointed out a combination of the Conservatives or Labour with the Liberal Democrats might still be short of the 326 needed for an overall Commons majority.

The investment bank noted how the context of the election result for the markets would be the implications for the UK Government's commitment to "austerity 2.0" as well as the possibility of a referendum on the UK's EU membership.

But Mr O'Neill stressed, given the underlying strength of Britain's economy, there was no immediate danger of a debt rating downgrade, which, if it were to happen, could push up borrowing costs.

"The economic context is relatively very bright", he declared. "As we go into the election the misery index will be very low. We have a very robust consumer recovery with the first rise in real average earnings in six years, easy credit conditions, low inflation and the stimulative effect of the collapse in the oil price".

Mr O'Neill warned the possibility of "Brexit" was potentially a market concern but investors would only start to assess the risks seriously once the shape of the new government was known.

While the banking chief said the likely result of any referendum was that the UK would remain a member of the Brussels bloc, he, nonetheless, said the threat of a poll could harm the economy, gilts, sterling and specific sectors of the equity market.