LONDON (AP) — The value of the pound fell Friday after Bank of England Governor Mark Carney said the risk of Britain leaving the European Union without a deal is “uncomfortably high.”
Divorce talks between Britain and the EU have stalled amid feuding within U.K. Prime Minister Theresa May’s government about how close an economic relationship to seek with the bloc after Brexit. Officials say there is a growing chance no deal will be struck before the U.K. leaves in March.
May was meeting French President Emmanuel Macron at his official holiday retreat in southern France on Friday for talks on Brexit, as she tries to overcome domestic and European opposition to her plans for future trade ties.
Carney said that “the possibility of a ‘no deal’ is uncomfortably high at this point.” He told the BBC that a no-deal Brexit — in which Britain would lose its tariff-free access to EU markets — would mean disrupted trade and higher prices.
“It is highly undesirable,” he said. “Parties should do all things to avoid it.”
The pound fell about 0.2 percent to below $1.30 just after the comments. The currency has lost more than 15 percent of its value against the dollar since Britain voted in 2016 to leave the EU.
The Bank of England raised its benchmark interest rate Thursday from 0.50 percent to 0.75 percent, the highest level in almost a decade, amid low unemployment, rising wages and increasing inflation. But with uncertainty about Brexit weighing on the economy, Carney said future rate rises were likely to be “limited and gradual.”
Carney said Friday that the Britain’s banks were resilient enough to continue lending after a no-deal Brexit. He said a stress test last year had gauged lenders’ resilience in the event of a one-third fall in real estate values, interest rate increases of 4 percentage points and 9 percent unemployment — though he said that was not meant as a prediction of what would happen after Brexit.
“We have been planning for very difficult circumstances and the banks are ready,” Carney said.