Morgan Stanley said that the political situation was “at least as significant as Brexit, given the fragile state of the current government and the perceived risks of an incoming Labour administration”. It saw “a high likelihood of another UK general election in late 2018”.
LONDON — It is “likely” that the UK will see another election in 2018 as Theresa May’s government becomes increasingly divided, according to research from economists at Morgan Stanley.
The US bank’s British economics team of Jacob Nell and Melanie Baker write in their European Economic Outlook that the Conservative Party is “torn.” This disharmony will eventually lead to the government’s untimely demise, they believe.
“With a minority government torn over Europe and facing a divisive choice between ‘taking back control’ and maintaining close links, we see another early election as likely,” the pair write.
May’s slender parliamentary majority means only a handful of hardline Brexiteers would need to rebel against her on the issue of Brexit to cause a disastrous government collapse. Her position has been further weakened in recent weeks following the resignations of key cabinet figures including Defence Secretary Michael Fallon and International Development Minister Priti Patel.
Morgan Stanley’s argument follows a similar line to one it made in September, when Nell and Baker said that the government will collapse in 2018.
Back then, Morgan Stanley’s basic argument for suggesting that the government will collapse in 2018 was that May would be able to tread a tightrope of just about satisfying both the moderate and more radical wings of the Conservative Party — as well as the general public — until the end of 2017, but not for much longer.
Brexit talks are still failing to make any real progress, with key issues such as the Irish border and citizens’ rights still needing to be resolved ahead of the European Council meeting next month. That meeting is crucial in the timeline of Brexit, as it is then when it will be decided whether “sufficient progress” has been made to allow talks to advance to their next stage.
If sufficient progress is not deemed to have been made, it effectively further shortens the UK-EU negotiation period even further, making the likelihood of a Brexit deal lower. Morgan Stanley’s team do believe that a deal will be struck eventually, saying: “In the end, we expect an 11th hour deal to avoid a hard Brexit and allow time for further trade talks.”
That deal, however, won’t come before the uncertainty around Brexit has further weakened the British economy, the pair argue, with the chart below illustrating their argument:
“With investment deterred by uncertainty and real consumption squeezed by inflation, we see growth continuing to run at a sub-par rate of around 0.3%Q through 1H18,” they write.
“We then expect rising uncertainty about the outcome of the Brexit talks and associated political turbulence to drive growth to a standstill in late 2018,” they add.
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Source : https://www.thetimes.co.uk/article/morgan-stanley-corbyn-is-a-bigger-threat-to-economy-than-brexit-kjszk376v
Source : http://uk.businessinsider.com/morgan-stanley-election-2018-may-government-collapse-2017-11