Mark Carney says a no-deal Brexit would be the ‘worst outcome’ for the Bank of England

Mark Carney today told the Treasury Select Committee that a "no-deal" Brexit would be the "worst outcome" for the Bank of England.

The BoE governor said he expected May's draft withdrawal agreement to "support economic outcomes" and welcomed the transition period, which is due to end in 2020.  

The transition period begins on 29 March 2019 and lasts until 31 December 2020, but the EU's chief negotiator Michel Barnier suggested over the weekend that it could be extended.

At the time of writing, the pound was up 0.06 per cent against the dollar at $1.2857.

In his appearance before the committee this morning, at which BoE economist Andy Haldane was also present, Carney was asked whether he thought a no-deal Brexit was likely.

"We're going to find out relatively soon," he said. He said it would be "very unlikely" but that the Bank had "always operated from the view this might happen".

Meanwhile, Haldane said there were already signs of of "uncertainties" around a cliff-edge Brexit having a detrimental impact on business investment plans.

Carney said a no-deal Brexit would send "a large negative shock to the economy" and could force trucks into gridlock at Dover. There would also be "immediate friction costs" he said, while in the long term, businesses would have to deal with any lost access to a major market.

Other consequences could be that capital and some workers are "stranded".

"It wouldn't be a happy situation to be in", he said, adding that any potential reduction in the supply output of the economy, would lead to a loss of jobs, lower wages and higher inflation.

Earlier Carney said the Bank would manage a monetary policy that would stick to the two per cent inflation target if the UK were to crash out of the EU without a deal.

The committee also heard from BoE deputy governor Sir Jon Cunliffe, who said that even if Britain were to crash out of the EU and default on terms set by the World Trade Organisation (WTO) there would not be "financial sector meltdown".

Cunliffe added that it was the Bank's responsibility "to be prepared for the worst" but the British public should feel assured that they won't see the "meltdown" caused by the financial crash in 2008.