Mr Arnott had been garnering support in the North of England for his campaign and attended hustings in various venues.
However, the 35-year-old has now decided to stand aside having concluded that he would only come second in the national ballot.
“There is no prize for a silver medal in a leadership contest. We are in the process of electing a new leader of the UK's third political party. This should not be taken lightly and the only reason for standing is for a candidate to believe that they can meaningfully aim to win the ballot,” he said.
Mr Arnott said that his campaign has been about party unity and internal reform and “in a smaller field of candidates there would have been a massive chance for a uniting, positive, compromise candidate to win. But that is not the race that we are in.”
He said UKIP must become a grown-up political party which is capable of taking on the political establishment on their own grounds.
“I want to see a UKIP which isn't frightened to talk about the economy, a UKIP which will discuss the future of our NHS, a UKIP which champions excellence in education which goes far beyond grammar schools, a UKIP which has at its core a belief in people power and direct democracy, and a UKIP which will declare war on the crime which blights so many working-class communities. I want to see a UKIP which is more professional in taking the fight to our opposition in the target seats.”
Mr Arnott, a former maths teacher who lives near Middlesbrough, concluded by saying that he wished the future party leader well but has yet to make up his mind which candidate to support.