As U.K. lawmakers prepare for a series of parliamentary votes to decide the nation's path forward in the Brexit process, analysts lowered their projections of the U.K. crashing out of the European Union without a deal, with a delay looking like the most likely option.
Prime Minister Theresa May pledged to put forward a revised Brexit agreement to a vote in the House of Commons by March 12, but the latest negotiations between the U.K. and the EU have failed to reach a breakthrough. The two sides continue to spar over the proposed Irish backstop, an attempt to avoid a hard border between Northern Ireland, which is part of the U.K., and the Republic of Ireland, which is an independent EU member. In its current form, the backstop risks indefinitely locking the U.K. into a customs union with the EU.
Parliament is expected to again reject a Brexit deal, analysts said in their research notes during the weeks leading up to the votes. If that happens, Parliament will then proceed to vote on whether the U.K. should crash out of the EU without a deal. If that vote fails, they could vote on whether Brexit should be extended beyond the current deadline of March 29.
The risk of a no-deal Brexit declined when May offered members of Parliament a chance to vote on a delay to leaving the bloc, though it remains the default path forward unless Brexit is delayed and the U.K. and EU can finalize a withdrawal agreement before any new deadline.
There is a less than 5% chance that Parliament will approve a no-deal Brexit next week and a 10% possibility of it in case Brexit is delayed, according to Danske Bank Research, while Oxford Economics says the probability of no-deal as the eventual outcome is 35%.
Parliament is likely to vote in favor of delaying Brexit by two to three months, analysts wrote, which would throw the ball into the EU's court to decide whether to accept the extension and for how long. A short delay would buy the U.K. more time to renegotiate its withdrawal agreement with the EU and gather domestic support for a deal, while also staying out of the European parliamentary elections, due in May.
However, EU leaders may argue that a short delay makes little sense unless the U.K. Parliament decides on the kind of Brexit it wants, according to analysts. Staying out of the European parliamentary elections would also make it impossible for the U.K. to delay Brexit further if a Brexit deal is still not reached during the period.
If British lawmakers agree to delay Brexit beyond March 29, the U.K. would face a host of potential scenarios including a withdrawal agreement eventually being reached and a new referendum that could lead to Brexit being reversed.
* Brexit deal: Danske Bank Research puts a 45% likelihood on May's deal or something similar being approved. Oxford Economics sees a 60% chance of a Brexit deal being reached eventually, while Berenberg places a 35% probability that the U.K. will agree to a customs union and participation in the single market for goods with the EU.
* Second referendum: Danske Bank places a 30% probability on this option. This scenario's persistence raises the chances of the U.K. staying in the EU to 25% from 20% previously, according to Berenberg senior economist Kallum Pickering, but it also keeps the possibility of a no-deal Brexit on the table.
* "Norway-plus": Berenberg assigns a 15% probability and Danske Bank sees a 10% chance that the U.K. agrees to join the European Free Trade Area to have full access to the European single market while staying in a customs union with the EU.