- Britain is increasingly likely to secure a last-minute “soft” Brexit deal which keeps it in the single market and customs union.
- That’s according to Morgan Stanley’s UK economics team of Jacob Nell and Melanie Baker.
- They pair argue that the fact the UK and EU are now discussing a deal which involves issues including a role for the European Court of Justice, and foreign policy, indicates the UK is softening its stance.
LONDON — Britain is increasingly likely to secure a last-minute soft Brexit deal which keeps it in the single market and customs union, according to Morgan Stanley.
Economists for the US bank said in a research note on Thursday that the first-round agreement struck between the EU and UK in December set a “constructive precedent” after reaching preliminary agreement on exit issues.
It said the fact parties are now discussing a deal which involves issues including a role for the European Court of Justice, and foreign policy, indicates the UK is softening its stance and is, therefore, more likely to succeed in negotiating a deal which includes access to the single market.
The UK’s move to consider a role for the ECJ after Brexit — something Theresa May previously ruled out as a “red line” in negotiations — is particularly important, because the EU considers ECJ co-operation compulsory for countries that have access to the EU single market.
It also said the UK’s new commitment to regulatory alignment between the Irish Republic and Northern Ireland — which is part of the UK — decreases the chance of a hard Brexit, because leaving the EU’s customs union would create a problem with the Irish border in the form of expensive tariffs and delays.
Chart: Britain edges towards a “soft Brexit”
The note, written by economists Jacob Nell and Melanie Baker, said the chance of a “soft Out” deal had increased from around 50% to around 70%, due to the “the pragmatic compromises made by the UK on the exit issues, and the problems of the Irish border in a hard Brexit.”
“We now see a significantly higher chance of a “soft Out” option in which the UK accepts some EU rules and a role for the ECJ, as it has in protecting the rights of EU citizens resident in the UK in the preliminary withdrawal agreement, in UK proposals for post-Brexit opt-ins to European regulation in aviation, chemicals and medicine and in UK proposals for shared regulation of financial services. This scenario would likely involve some bespoke EU-UK institutional machinery – represented by the half UK/half EU flag – in a variant of the EEA arrangements.