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Morgan Stanley forecasts that Teresa May’s government will fall in 2018, which will lead to new early elections. The analysts consider that government will survive in 2017, but will fall in 2018. Teresa May failed to win majority during the general election in June and was forced to enter into a deal with the Northern Ireland Democratic Unionist Party to ensure governance.

“We think the government will survive in 2017, but it will fall in 2018”, said the study of a team of economists and strategists at Morgan Stanley, led by Jacob Nell and Melanie Baker.

May’s weak parliamentary majority means that only some hardcore leaders will be enough to rebel against May to trigger a catastrophic collapse of the government. Morgan Stanley’s main argument that the government will collapse in 2018 is that May will be able to balance by the end of 2017, satisfying both the moderate and more radical wings of the Conservative Party, but this will not last for too long.

“This year, we think the government has made enough concessions to allow the Brexit talks to develop, and the government remains together only because the outcome is still open”, says the analyze of Morgan Stanley.

Brexit talks are now entering a new stage, with British representative David Davies and EU Chief Negotiator Michel Barnier holding a tense press conference last week at the end of the last round of talks. During this conference, Barnier said that British and European negotiators have not made “decisive progress” on the key issues that are being discussed, while Davies has said the opposite in practice.

The two countries have yet to reach an agreement on citizens’ rights, the border between the Republic of Ireland and Northern Ireland and the financial obligations of the UK.

Talks on future UK-EU relations, including trade, were initially scheduled to begin next month. However, this seems unlikely, as the two sides are still struggling to find a common ground on key issues.

“We expect the EU to offer a choice between close relations in which the UK can participate in the single market and customs union but will follow the rules of the EU’s game or cooler relations in which the UK achieves full sovereignty over borders, but does not participate in the single market and the customs union”, considers Morgan Stanley. “We expect this choice to split the Cabinet and the Conservative Party and will result in a loss of no confidence vote in parliament, which will trigger early elections”, predicts the US investment bank.

This political uncertainty will affect the economy, and the government’s collapse will freeze growth, something that can make the Bank of England reduce interest rates or undertake a new program of quantitative easing.

