Former Foreign Minister Boris Johnson will win the race to be the next leader of the United Kingdom and quickly call a general election to gain support for his Brexit plan.
That's the new base-case scenario from the investment bank J.P. Morgan, who said Tuesday the probability that Britain will leave the European Union without a deal has also risen.
The bank predicted in a research note that Johnson would win a leadership contest and be in place by early September. It added that within days of this, the EU will reject Johnson's call to remove the controversial Irish backstop arrangement from any Brexit withdrawal deal.
The backstop plan is essentially a legally-binding insurance policy to ensure there is no hard border between Northern Ireland and the Republic of Ireland. It has been provisionally agreed between the EU and the current U.K. government led by Prime Minister Theresa May, but Johnson and other "Brexiteers" consider it a means by which Europe can continue to dictate terms.
J.P. Morgan said that while Brussels will deny Johnson's fresh Brexit plan, it will grant the U.K. a further extension of membership until the end of December. This would allow the time for a new a U.K. general election.
The bank's analysis has increased the chances of a "no-deal Brexit" to 25% from the previous 15% level, reflecting fears that a U.K. leadership contest could spice up anti-Brussels sentiment.
"It is not difficult to imagine one or more EU leaders responding to a bellicose turn in U.K. rhetoric by stating they will not support a further extension of Article 50," said the note.
The investment bank also noted that a leadership victory for Johnson would likely trigger a number of defections from within the Conservative Party, strengthening the case for a general election.