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The possibility of 'Referendum 2.0' on Brexit is rising

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
The People’s Vote: A protester listens to speeches during a demonstration against Brexit in London. Photo: Simon Dawson/Getty Images.

The chances of a second referendum on Britain leaving the European Union are rising, according to a top Japanese investment bank.

Nomura said on Friday that “Referendum 2.0” could become its “base case” if Theresa May’s Brexit deal is rejected by parliament next week, meaning the bank would see it as the most likely future scenario on Brexit.

The bank said that if a vote does happen, it thinks Britain will vote to remain in the European Union. Earlier this week, JPMorgan raised its forecast probability for no Brexit from 20% to 40%.

George Buckley, Nomura’s chief UK economist, and his team wrote in a note to clients: “In the event of a heavy loss for the existing deal in the House of Commons next week we may end up having to raise our probability of a second referendum – and thereby a vote to remain in the EU, overturning the Brexit process – shifting it to our central scenario.”

Politicians are due to vote on prime minister Theresa May’s draft Brexit deal next Tuesday. The deal is unpopular and widely expected to be rejected by parliament.

May has warned MPs that the UK will crash out of the EU without a deal or cancel Brexit altogether if her deal is rejected.

Nomura’s base case is that May’s deal will be rejected but that a similar deal will subsequently be approved after some concessions are made.

But “a sizeable vote against the deal on 11 December would mean stalemate and bring the UK to the brink of a constitutional crisis,” Buckley and his team wrote.

This could push politicians to call for a second Brexit referendum, Nomura believes. The bank added that it thinks the most likely outcome of a second vote would be Britain remaining in the EU.

A push for a second referendum has been gathering momentum in the UK over the last year thanks to campaign group “The People’s Vote”. A petition with over 1 million signatures calling for a second vote was handed to the prime minister recently.

BuzzFeed reported on Thursday that the prime minister’s office has discussed the possibility of a second referendum if May’s deal is rejected next week. The Financial Times reported on Friday that leading “Leave” campaigners are also considering the possibility of a second vote.

“We now think the chances of both a no-deal Brexit (10%) and that of the current/similar deal being passed (50%) have fallen and that the probability of remaining in the EU/EEA solution (40%) has risen,” Buckley and his team said.

Nomura thinks a no-deal Brexit would “push sterling lower, lead to higher inflation, a sharp recession and (contrary to the BoE’s mechanical projection) looser monetary policy.” Remaining in the EU “would – eventually – provide more certainty (unless it were to fail to put the Brexit genie back into the bottle) which could help support economic growth as business investment is unlocked and household confidence rises.”

Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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