LONDON (Reuters) - ING, one of Europe's largest banks, said on Tuesday its central assumption was Brexit would be delayed, with a 40 percent chance of a national election in the United Kingdom.
Prime Minister Boris Johnson, who took power last month, has pledged to leave the European Union on Oct. 31 without an agreement on the terms of Britain's departure, unless the EU agrees to renegotiate a deal reached by his predecessor Theresa May. The EU has refused to do that.
ING economist James Smith said his central assumption was that Britain would end up with an election.
"It is very risky to go to the voters if there is a no-deal Brexit," Smith told Reuters. "A general election looks increasingly likely."
Parliament, he said, was likely to force a vote of no confidence on Johnson's government and then would try to force a delay to Brexit.
"There's a 40 percent probability of a general election coupled with an Article 50 extension," Smith said, referring to the notification Britain would leave the EU. He raised the probability of a no-deal Brexit to 25 percent from 20 percent.
The bank said sterling (EURGBP=D3) could fall to 95 pence per euro this quarter and that the British economy would feel the pressure too.
Wrenching the United Kingdom out of the EU without a deal means there would be no formal transition arrangements to cover everything from post-Brexit pet passports to customs procedures on the Northern Irish border with EU member Ireland.
Many investors say a no-deal Brexit would send shock waves through the world economy, tip Britain into a recession, roil financial markets and weaken London's position as an international financial center.
Supporters of Brexit say that while there would be some short-term difficulties, the disruption of a no-deal Brexit has been overplayed and that in the long term, the United Kingdom will thrive if it leaves the EU.