Mr Knapman says the party is not broke
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The UK Independence Party will not contest the Cheadle by-election.
Leader Roger Knapman said UKIP wanted to concentrate its resources on campaigning for a referendum on British membership of the European Union.
Mr Knapman said that fight was especially important as the UK begins its presidency of the EU.
The by-election has been called for 14 July. It was sparked by the death last month of sitting Liberal Democrat MP Patsy Calton.
'Not broke'
UKIP lost its deposits in at least 451 seats at the general election, costing it about £225,500.
But Mr Knapman said the decision to miss the by-election was not so much amount money. The party was not "broke", he said, and could have probably found £20,000 to fight the campaign.
He said the party's MEPs were busy because of the British presidency of the EU.
They were also considering launching a large petition campaign on the European Union to ensure parts of the EU constitution were not introduced despite French and Dutch voters rejecting the document.
Mr Knapman said the party had been fighting elections almost constantly and was proud of its performance in South Staffordshire, where the parliamentary election was delayed by the death of a candidate.
UKIP won 10% of the vote in the poll, which was won by Conservative Sir Patrick Cormack.