A "disorderly" Brexit transition period may force the Bank of England to cut interest rates or pump money into the economy to stabilise it, governor Mark Carney has suggested.
The UK central bank's current projections are based on a smooth transition when Britain leaves the European Union, he said in a speech, before warning that "a sharper Brexit could put monetary policy on a different path".
If that happened, the bank's Monetary Policy Committee (MPC) would face "a trade-off between the speed with which it returns inflation to target and the support policy provides to jobs and activity," he said.
Following the 2016 referendum, the Bank cut interest rates to a historic low of 0.25 per cent and added 60 billion pounds to its quantitative easing programme.
Brexit has knocked real household incomes by around 900 pounds, and lowered growth by "up to 2 per cent" against what the Bank had expected in 2016 if the UK had voted to remain in the EU, Mr Carney said earlier this week.
His Thursday speech came after MPs warned that the UK may be forced to remain in the EU's customs union beyond 2020 because of the government's failure to set out alternative plans.
The cross-party Commons Exiting the European Union Committee issued a withering report on Prime Minister Theresa May's efforts to find a replacement customs system and concluded that extending the current arrangement was the only "viable option" left.
The MPs said it was "highly unsatisfactory" that ministers had yet to agree on the trading and customs arrangements they wanted to achieve after Brexit.
Existing rules are set to be extended during the transition period from the date of Brexit in March 2019 until the end of 2020.
