Brexit protest

  • Japanese bank Nomura identifies a second Brexit referendum as one of its “grey swans” for 2018.
  • Grey swans are “unlikely but impactful events” that “lie outside the usual base case and risk scenarios of the analyst community.”
  • Second referendum could occur if public opinion continues to move away from leaving the European Union.

LONDON – There’s a real chance that Britain will hold a second referendum on leaving the European Union next year, if public opinion continues to shift against Brexit, Japanese bank Nomura believes.

Writing earlier in December, Nomura identified a second referendum as one of its 10 possible “grey swan” events for 2018. These are unlikely but impactful scenarios that could have a material effect on markets next year, outside of the more widely discussed possibilities such as the Italian election and Donald Trump being impeached.

Nomura’s argument for a second referendum focuses around the fact that close to three quarters of all MPs backed remaining in the EU last summer.

“Parliamentary mathematics is the key here. Around 75% of MPs (including a slim majority of Conservative ones) are pro Remain,” Jordan Rochester and Andy Chaytor wrote.

“So why are they pushing through Brexit legislation? They are enacting the will of the people as set out in the 2016 referendum. Of course, the will of the people can change. Over recent months we have seen a slim majority in the polls saying in hindsight it was wrong for Britain to vote to leave the EU.

“If this trend continues and that slim majority becomes a commanding one this may embolden Remain MPs on all sides of the house to push for a second referendum, perhaps on the outline of the actual deal the UK agrees with the EU.”

Numerous major political figures back a second referendum, with the Liberal Democrats focusing their whole suite of policies on the belief that Britain should be given another vote on Brexit. 

At the party’s Autumn conference in September, Lib Dem leader Vince Cable insisted that under his leadership Brexit could be stopped, saying that the Lib Dems were the only party that could achieve an “exit from Brexit.” 

Cable said the party would offer voters a referendum on either accepting the final Brexit deal, or staying inside the EU.

There is evidence to suggest that a shift towards favouring staying in the EU is already occurring, with a recent poll published in the Mail on Sunday newspaper finding that 50% of people support another vote on the final terms of Britain’s exit deal.

The result was “the first time any pollster has recorded backing” for a second Brexit referendum, according to Mike Smithson, a widely respected election analyst.

While a second referendum is an option next year — Nomura also thinks there is the potential for another general election — timing could be a problem.

“As things stand there is not a huge amount of time to fit in a referendum,” Rochester and Chaytor wrote.

“This is why it would be a tail risk. The really interesting question is what sort of tail risk because there are two different options here.”

“The question could ask whether to accept any deal or instead remain in the EU. Or it could ask whether to accept any deal or crash out of the EU altogether. The market implications of these two different questions would be very different!”

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