Daily Management Review

Morgan Stanley: There's a little chance Brexit will fail


UK may still remain part of the EU even despite results of the referendum, say Morgan Stanley economists Jacob Nell and Melanie Baker.

In their view, such a prediction may well come true, in spite of the fact that the United Kingdom and Europe are seriously discussing whether the landing will be "hard" or "soft."

"Hard" Brexit case involves a complete break with the single market and with Europe. The odds are pretty meager, about 10%. However, Morgan Stanley thinks that such a variant would be possible under three conditions. 

1. Early elections or at least to pre-term abdication of the current government until the next election in May 2020

2. The official opposition should speak for staying in the EU.

3. Victory of opposition, which advocates to stay in the EU, with early elections.

" The opposition parties should table a motion of no confidence in the government to hold early elections before May 2020. This is quite likely, given the slim majority which supports the current rate, and the fact that there is a considerable split in the Conservative party." - said the expert.

Now everything goes around the fact that the UK will eventually the EU structure, but this is still yet to happen. Morgan Stanley experts actually say that probability of survival of Great Britain in the EU decreased significantly compared with the previous forecast.

"The opposition is not going to stay in the EU after re-election of Corbin as leader of the Labour Party. In addition, public opinion polls of Labour Party are lagging behind the Conservative Party by 10 points, and it is already reducing likelihood of the opposition victory. There still remains a 66% probability of early elections, 25% of that the opposition would vote to remain part of the EU, 50% of that the opposition would win. This suggests 8.25% chance to vote to stay in the EU. So, the likelihood that the country will remain in the EU is quite low, "- say experts of the bank.

A more likely option of "soft" Brexit is a trend of recent weeks, experts say

"There remains some probability of "soft" Brexit, in which the United Kingdom retains the greater access to the single market. The talks have not yet begun, and the yield is unlikely to take place before the I quarter of 2019", - the analyst concluded.

source: uk.businessinsider.com