LONDON — With Brexit talks formally starting on Monday, the coming weeks and months are likely to offer the world a glimpse of what Britain’s EU exit will finally look like.
Before the general election, it seemed fairly obvious that Prime Minister Theresa May was only considering one type of Brexit — a hard exit including tightly controlled immigration but an exit from the European Single Market.
However, after May’s failure to win a majority in the House of Commons — which is set to lead to a minority Conservative government propped up by the DUP — it is possible that there may be a moderating of stance on leaving the EU, with senior figures in the government, including Chancellor of the Exchequer Philip Hammond pushing for a less aggressive approach.
According to new research from French lender Societe Generale, hard Brexit remains by far the most likely outcome — with a 70% probability — but there are four other possible scenarios that could play out in the next 18 months of negotiations.
“It is tempting to talk up the chances of a soft Brexit following the humbling of May in the election, but to us a hard Brexit is still much the most likely outcome,” SocGen’s Brian Hilliard wrote in a note to clients on Tuesday.
The five possible Brexit scenarios, including the basic hard Brexit, are:
1. Hard Brexit
In this instance, “the government sticks to the objectives of the Article 50 letter to leave both the Single Market and Customs Union.” Citing a paper written in 2014, when Brexit, and even a referendum, was but an idea, SocGen notes that it “estimated that this scenario could result in a loss of GDP growth of over 0.5% p.a. for up to ten years.”
There is a 70% chance of this outcome.
2. Soft Brexit
A Soft Brexit would be triggered, the bank argues, if Theresa May’s “government takes the election result as a clear message from the electorate that it wants an exit from the EU that achieves the nebulous goal of regaining some lost sovereignty while retaining trading arrangements approximating to full access to the Single Market and participation in the Customs Union.”
Societe Generale assigns a 15% probability of soft Brexit.
3. Cliff edge Brexit
Theresa May has consistently argued that “no deal is better than a bad deal” for the UK when it comes to Brexit, and that’s exactly what would happen in the cliff edge scenario. Here “negotiations fail to reach agreement and the talks collapse; the UK trades with all nations under WTO rules.” A cliff edge has a 10% chance, Hilliard and his team believe.
4. No Brexit
Brexit doesn’t mean Brexit, and the government decides that for the good of the nation, Britain should remain in the EU.
The true awfulness of the consequences of Brexit becomes apparent to the UK government so it ends up recommending to the UK voters, either through a second referendum or another general election, to stop the clock and remain in the EU. And the voters agree,” Hilliard and team write, noting that there is just a 4% chance of this happening.
5. “Back to the drawing board”
Even less likely than not leaving the EU — with just a 1% chance — the back to the drawing board approach could occur if Brits voted to leave the EU again in a second referendum.
In that scenario, it would mean “the electorate requires the government to try again to strike a better Brexit deal.”
“But if this is close to the two-year deadline, then it might be too late to renegotiate, so it ends up as Scenario #3,” Societe Generale’s note argues. Hence the tiny probability.
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