'The crucial point wherein Brexit could be stopped'

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JPMorgan thinks the only way to stop Britain leaving the EU is for MPs to vote it down in Parliament — but the bank does not think it will happen.

Brits voted 52% to 48% to leave the European Union in a referendum on membership last week, a result that has shocked the world and sent financial markets tumbling. Prime Minister David Cameron, who backed the Remain campaign, has pledged to resign in October after losing the vote.

How Brexit Happens

In a note sent to clients this week called “How Brexit Happens,” JPMorgan says the key moment to reverse the historic decision would be when Article 50 of the Lisbon Treaty comes up for ratification in the House of Commons, likely towards the end of this year.

Under EU law, Britain must trigger Article 50 to set in motion the 2-year window for leaving the European Union.

JPMorgan’s Malcolm Barr, who covers UK economics and politics for the bank, thinks the new Prime Minister will go to parliament to ratify Article 50 before notifying the EU since the referendum result is not actually legally binding. This will give MPs the opportunity to reject it.

The bank says 20 Tory MPs would have to defy the new Prime Minister, whoever that may be, in order for Article 50 to be defeated in the House of Commons, assuming Labour and other opposition parties reject it. Labour MP David Lammy has already called for MPs to reject Article 50 when it comes before the House.

If the motion is defeated

If the motion is defeated, JPMorgan expects a general election, which would likely turn into another vote on the Brexit with the Tory party likely backing it and Labour campaigning on a pro-European platform.

However, the investment bank thinks it is unlikely Article 50 will be rejected. Morgan Stanley came to a similar conclusion that MPs are unlikely to block moves to leave the Union, saying Conservatives are bound to their commitment in their last party manifesto to honour a referendum on membership.

Here are the key paragraphs from JPMorgan (emphasis ours):

“The incoming PM is likely to seek Parliamentary assent for submitting the formal article 50 request to leave the EU. With the EU refusing to begin talks before the article 50 request is submitted, our base case is this happens by the end of the year. Constitutional experts argue about whether this is strictly needed or whether the new PM could act unilaterally.

“In practise we think it inevitable that the new PM would seek a Parliamentary assent given that the referendum is not legally binding. In our view, this is the crucial point wherein Brexit could be stopped, if it is to be blocked. Enough Conservative MPs (at this stage, we guess close to 20) would need to defy the leadership to prevent a motion from passing. This would likely generate a confidence vote and possibly a new general election if it occurs. Our base case is that Conservative MPs will fall in behind the leader and implement “the will of the people” as expressed in the referendum.”

Some Remain campaigners are calling for a second referendum on EU membership, with a petition asking for this reaching over 4 million signatures.

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