Both JPMorgan and Nomura say their outlook has shifted, and now see the prospect of staying in the EU as having about a 40% chance.
- Both JPMorgan and Nomura now see the prospect of staying in the EU as having around a 40% chance.
- This week has seen the European Court of Justice say that the UK should be able to unilaterally withdraw from leaving the EU.
- That, and a parliamentary amendment that gives British lawmakers more say in the deal should Prime Minister May's deal fail, have raised the likelihood of staying in the EU.
A rising of tide of City of London analysts now see an increased likelihood of the UK deciding not to leave the European Union after all, and simply cancelling Brexit.
JPMorgan's Malcolm Barr now puts the odds of scrapping Brexit at 40%, a sharp spike from 20% odds he had previously put on the scenario. Japanese banking giant Nomura now also sees more probability of the UK staying in the EU, it now puts odds at 40%.
The outlook has shifted because of an eventful week, where the law chief of Europe's highest court advised that the UK should be able to reverse Brexit. The European Court of Justice on Tuesday proposed that Article 50 — the legal mechanism which kickstarted Brexit — allows the "unilateral revocation" of the UK's intention to withdraw from the EU.
In a note on Wednesday, JPMorgan's Barr cited the European Court of Justice proposal when he shifted the bank's matrix of Brexit outcomes. Previously, the bank's odds of various outcomes went like this: A so-called "no deal" — 20%; orderly Brexit (i.e. Brexit with a deal) — 60%; and staying in the EU — 20%. (They're now at 10%, 50% and 40%, respectively.)
"One of the issues about a second referendum has, in our view, always been the need for an Article 50 extension and potential EU involvement in the design of that referendum," Barr wrote in the report. "The UK now appears to have the option of revoking unilaterally and taking a period of time of its own choosing to decide what happens next."
Here's more from JPMorgan's note (emphasis ours):
Within the "no Brexit" scenarios, a unilateral revocation on the UK’s part looks more likely to us than a joint UK-EU decision to extend the Article 50 negotiating period and thereby keep the existing clock running. And a second referendum strikes us as rather more likely than a general election to be driving a decision to revoke. Hence, within that 40% "no Brexit" possibility, we see a 25% chance of a revocation to facilitate a second referendum, and a 15% chance that it is to facilitate a general election.
When raising its odds, Nomura cited the amendment passed by Parliament on Tuesday, which allows MPs to take control of Brexit if May’s deal is voted down, as expected, next week.
"The probabilities have changed," Nomura wrote on Wednesday, partly because of the amendment. It carries huge political weight and would be very difficult for the government to ignore.
"If the government loses the meaningful vote, then MPs will be able to add, and vote on, amendments instructing the government as to what to do next, Nomura said. "Parliament will do what it can to avoid Hard Brexit," it said, and the amendment "makes it easier to do."
To be clear, both JPMorgan and Nomura both continue to see the Brexit outcome with the highest likelihood being the UK leaving on the terms, or very close to the terms, of May's current deal, both placing that probability at 50%.
Betting markets are also swaying towards the UK remaining in the EU, with betting exchange Smarkets saying its customers now see about a 53% chance of the UK not leaving the EU by March next year.
Financial advisory firm deVere Group said people are less certain: "Nothing is currently priced in because of the enormous question marks hanging over the many different outcomes," said Nigel Green, founder and chief executive of deVere.