LONDON, May 23 (Reuters) - Britain's finance ministry

said it was "working through internal due process" when asked to

clarify the possible impact of a July 4 election on the

government's proposed retail offer in NatWest ( NWG ), a

spokesperson told Reuters in an emailed statement on Thursday.

The heavily-anticipated stock sale, a key milestone in the

full privatisation of the taxpayer-backed bank, is hanging in

the balance after Prime Minister Rishi Sunak said on Wednesday

Britain would be heading to the polls in less than two months.

Shares in the lender, which have gained more than 40% this

year to date, were trading 2% lower at 1002 GMT, as investors

waited for official confirmation that the proposed offer would

be mothballed.

Chancellor Jeremy Hunt and UK Government Investments, the

agency that manages Britain's holding in NatWest ( NWG ), were planning

the sale to jumpstart ambitions to promote wider retail

ownership of UK stocks.

But the imminent election places the decision on how to

offload the taxpayer's remaining shares in NatWest ( NWG ) in the hands

of the next government, sources told Reuters on Wednesday.

Analysts at Peel Hunt said the sale could not take place

before an election and it was also unclear whether the Labour

Party, which is hotly tipped to lead the next government, would

proceed with the initiative.

"Although the UK Government is a passive investor only in

NatWest ( NWG ), the presence of the State on the share register in our

view is not helpful for the rating of NatWest's ( NWG ) shares," they

said in a note.

"Whilst this development does not alter our positive view on

the outlook for the company and its shares, the uncertainty is

modestly unhelpful for NatWest ( NWG ) in our view."

As Britain's biggest casualty of the 2008-9 financial

crisis, the lender formerly known as Royal Bank of Scotland had

been preparing to end what its chairman recently called the

"sorry tale" of its partial state ownership.

The bank succumbed to a 46-billion pound ($58 billion)

bailout in 2008. Since then, a slew of CEOs have transformed

NatWest ( NWG ) from a sprawling global bank into a tightly-run domestic

player, focused on UK household, consumer and business lending.

Some market commentators had cautioned against Hunt's

proposed sale, fearing that bank stocks may not be a wise

investment for some inexperienced investors as a cost of living

squeeze continues.

The government held just under 27% of the bank's stock as at

May 13.

"The 7 billion pounds value of the government's NatWest ( NWG )

stake means we think completing the sell-down will be attractive

to a future UK government," Bank of America ( BAC ) said in a research

note.

"A retail offer might no longer be a preferred vehicle

but could be replaced by an additional institutional placing,"

the note said, adding that a full disposal of the taxpayer's

stake in 2025 was likely.