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Chance that Brexit still might not happen, Morgan Stanley predicts

People wear a European and a Union flag during an Anti Brexit campaigners march in Parliament in London. (AP Photo/Kirsty Wigglesworth)
People wear a European and a Union flag during an Anti Brexit campaigners march in Parliament in London. (AP Photo/Kirsty Wigglesworth)

There is a 10% chance that Brexit still might not happen, according to a report published by UK-based analysts at financial services giant Morgan Stanley.

The mammoth research note published this week suggested that the most likely path to a reversal of Brexit lay with a Labour government, but that the chances of this happening were still modest.

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Morgan Stanley named Labour’s approach to prioritise protecting jobs and investment in the run up to Brexit rather than the ‘sovereignty-first’ attitude adopted by the Tories.

“This priority was illustrated by the Labour decision to support ongoing UK membership of the single market and customs union until a final agreement is reached,” it said.

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“However, although most Labour MPs and supporters favour close ties with Europe, official Labour policy is also ultimately in favour of ending free movement of labour and of leaving the EU.”

Given the enhanced authority granted to Jeremy Corbyn as a result of the party’s improved polling at the latest general election, Morgan Stanley said the Labour leader is unlikely to be challenged on his position for the meantime.

But the report noted that Corbyn’s mixed views on Europe – his eurosceptic past combined with his liberal position on immigration – meant the Labour leader was likely to respect public opinion rather than working to reverse it.

Theresa May’s government is also expected to crumble in 2018, the report said, when the outcome of the Brexit talks become clear. However, for the time being, rifts in the party could be pulled together by adopting a softer approach to Brexit, it added, which will delay the risk of a Labour government.

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Overall, Morgan Stanley said a chance of a Brexit reversal is low – around 10%. For this scenario to play out, the report explained that three changes would be required:

i) Another election before the UK leaves the single market, which it sees as a two-thirds probability;

ii) Labour victory in that election, which it puts at a 50/50 probability;

iii) A change in Labour policy to supporting free movement of labour, perhaps in a modified form, which it sees as no more than a one-third probability.