JPMorgan, Bank of America Still See `Hard Brexit' After Election

  • May seen seeking to leave single market, immigration control
  • Berenberg says chances of ‘hard Brexit’ may rise after vote

JPMorgan Chase & Co. and Bank of America Corp. advised clients that the U.K. is still on track for a “hard Brexit” even if Prime Minister Theresa May strengthens her hold on power in June’s election.

Some investors bought the pound Tuesday following May’s announcement of a snap election on the assumption she would win a large enough parliamentary majority to dilute the influence of those lawmakers who advocate a clean, swift break with the European Union.

May is nevertheless still likely to try to pull Britain from Europe’s single market and seek to regain control over immigration, budget payments, lawmaking and trade deals, said economists at BofA and JPMorgan. That would amount to a so-called hard Brexit.

“While cutting economic tail risks, the election also, we think, cements our base case of a hard Brexit,” BofA economists Robert Wood and Gilles Moec said in a report. “We do not anticipate PM May dropping her previous red lines.”

What may have changed is that the “downside risk of a chaotic” departure has eased because a re-elected May might have more room to secure a transitional period for after Brexit, they said.

At JPMorgan, economists Malcolm Barr and Allan Monks said Brexit would ultimately limit the access to the EU for services and questioned how much May’s strategy to date had been shaped by those who campaigned for the split.

“It is not clear to us that the positions May has adopted on many of the Brexit-related issues, such as the decision to leave the single market, have been forced upon her by the need to placate the right wing of the Conservative Party,” said Barr and Monks.

Hard-Line Views

The election could even make a hard Brexit more likely, said Kallum Pickering, an economist at Berenberg Bank in London.

“We expect Conservative MPs to be more pro-Brexit, on average, after the vote,” said Pickering. “May’s hard-line views on EU migration suggest that she harbors hard-Brexit tendencies.”

Still, Deutsche Bank AG strategist Oliver Harvey reiterated in a new report on Friday that the chances of achieving a soft Brexit had increased in his view because more power for May would allow a more realistic timeframe for negotiations and avoid a collapse in the talks.

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