Britain is increasingly likely to secure a last-minute "soft" Brexit deal which keeps it in the single market and customs union.

That's according to Morgan Stanley's UK economics team of Jacob Nell and Melanie Baker.

They pair argue that the fact the UK and EU are now discussing a deal which involves issues including a role for the European Court of Justice, and foreign policy, indicates the UK is softening its stance.

LONDON — Britain is increasingly likely to secure a last-minute soft Brexit deal which keeps it in the single market and customs union, according to Morgan Stanley.

Economists for the US bank said in a research note on Thursday that the first-round agreement struck between the EU and UK in December set a "constructive precedent" after reaching preliminary agreement on exit issues.

It said the fact parties are now discussing a deal which involves issues including a role for the European Court of Justice, and foreign policy, indicates the UK is softening its stance and is, therefore, more likely to succeed in negotiating a deal which includes access to the single market.

The UK's move to consider a role for the ECJ after Brexit — something Theresa May previously ruled out as a "red line" in negotiations — is particularly important, because the EU considers ECJ co-operation compulsory for countries that have access to the EU single market.

It also said the UK's new commitment to regulatory alignment between the Irish Republic and Northern Ireland — which is part of the UK — decreases the chance of a hard Brexit, because leaving the EU's customs union would create a problem with the Irish border in the form of expensive tariffs and delays.

Chart: Britain edges towards a "soft Brexit"

The note, written by economists Jacob Nell and Melanie Baker, said the chance of a "soft Out" deal had increased from around 50% to around 70%, due to the "the pragmatic compromises made by the UK on the exit issues, and the problems of the Irish border in a hard Brexit."

It said:

"We now see a significantly higher chance of a "soft Out" option in which the UK accepts some EU rules and a role for the ECJ, as it has in protecting the rights of EU citizens resident in the UK in the preliminary withdrawal agreement, in UK proposals for post-Brexit opt-ins to European regulation in aviation, chemicals and medicine and in UK proposals for shared regulation of financial services. This scenario would likely involve some bespoke EU-UK institutional machinery – represented by the half UK/half EU flag – in a variant of the EEA arrangements.