The prospect of a radical Left-wing lurch under Jeremy Corbyn is a more serious threat to British asset markets than Brexit and risks setting off a drastic repricing of UK plc, a leading US bank has warned.

Morgan Stanley has told clients that there is a two-thirds likelihood of snap elections in the second half of 2018 once it becomes clear that the UK cannot secure the sort of Brexit deal it wants and the Conservative Party starts to fracture, bringing political risk into sharp focus.

“We could see the biggest shake-up in the political backdrop since the Seventies. This is much more scary from an equity perspective than Brexit,” said Graham Secker, the bank’s chief European equity strategist.

The bank said the "double whammy" of Brexit and a Labour government together could prove toxic for UK stock markets, with the bank’s full-blown ‘bear case’ leading to an economic recession and a 32pc crash in the FTSE 100 index by 2019.

Gilts could also face a reckoning given that 10-year yields are trading at 1.26pc while inflation is running at 3pc, with a further depreciation of sterling on the cards. “Bond investors are losing money faster in the UK than almost anywhere in the world,” said Andrew Sheets, the bank’s global asset strategist.