Britain’s competition watchdog has provisionally dropped concerns that Microsoft’s proposed takeover of Activision Blizzard would damage the UK console gaming market.

The Competition and Markets Authority (CMA) last month warned the £56.7bn deal could result in higher prices, fewer choices or less innovation for UK gamers.

However, it said its latest findings have now indicated the “transaction will not result in a substantial lessening of competition in relation to console gaming in the UK”.

The CMA said its provisional position has changed following a period of consultation involving interested parties.

It had initially raised concerns that Microsoft could opt to make popular Activision games, such as Call Of Duty and World Of Warcraft, exclusive to its own Xbox consoles.

However, the regulator said on Friday it now believes “this strategy would be significantly loss-making”, compared with the benefit of also selling the titles on rival consoles like the PlayStation 5.

Martin Coleman, chair of the independent panel conducting the CMA investigation, said: “Provisional findings are a key aspect of the merger process and are explicitly designed to give the businesses involved, and any interested third parties, the chance to respond with new evidence before we make a final decision.

“Having considered the additional evidence provided, we have now provisionally concluded that the merger will not result in a substantial lessening of competition in console gaming services because the cost to Microsoft of withholding Call Of Duty from PlayStation would outweigh any gains from taking such action.”

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The CMA added its provisional view that the deal raises concerns related to cloud gaming has been “unaffected” by the update.

The investigation is due to close next month, with a report due by 26 April.