It is really too hard to say as things stand, and there are persuasive arguments on both sides. Right now, I would say the odds are genuinely 50:50.
In favour of a split, it can be argued that – as the vast majority of Labour MPs do not support Jeremy Corbyn, and the Party’s opinion poll ratings are woeful – there is little reason to stay to be led to electoral and political oblivion. Even if the MPs continue launching leadership challenges against Corbyn, he is likely to keep winning for as long as he retains the support of the Party’s grassroots Party members, affiliates and registered supporters.
The conclusion might be that a breakaway party should be formed that could herald a simultaneous clear break both with Corbynism and with Blairism: Sensible Labour, as its supporters would see it. One option might be a merger with the rump Liberal Democrats, particularly now that the Left-leaning Tim Farron is the leader in the wake of his Party’s failed Orange Book experiment.
However, against a split, the failure of the SDP to make a major breakthrough in the mid-1980s due to Britain’s first-past-the-post electoral system will be at the back of many Labour politicians’ minds. They will be grimly aware that leaving the Party could be a leap into political oblivion. Furthermore, many Labour MPs will view leaving as conceding defeat to Corbyn, whereas by staying, they can at least keep arguing against his policies and repeatedly point out his unpopularity, further reducing his credibility to the extent that even his erstwhile supporters may become disillusioned.
These Labour MPs will hope that, sooner or later, Corbyn will stand down or somehow be forced out, whereupon the Party can begin the long journey back to power. In any case, a merger with the Lib Dems is in reality unlikely, as neither party will want to lose their distinct identities, and Labour MPs continue to resent the Lib Dems’ acquiescence with the Conservatives when in coalition. They have certainly not forgiven them yet.