Britain risks economic and financial “consequences” if it makes a hard break with the European Union at the end of the the two-year negotiation period, Bank of England Governor Mark Carney said.
Carney advocated for a transition deal with the European Union to be put in place once the Article 50 Brexit talks finish, in a question and answer session with MPs on Wednesday.
Carney said a deal would be “highly advisable.”
“If there is not such a transition put in place, in our view it will have consequences. We will work to mitigate those consequences as much as possible,” he said.
Securing a transitional deal would allow several years for new arrangements with the European Union to take effect after the two-year deadline for negotiating Brexit ends in 2019, making it easier for businesses and public services to adapt.
The idea is gaining traction among politicians. Last month Prime Minister Theresa May hinted she might push for such a deal.
“But if you think about the process we’ve got to go through once you’ve got the deal, once we’ve got the new arrangements, there will of course be a necessity for adjustments for the new arrangements, for implementation of some practical changes,” May told a panel of MPs in December.
Carney also said that Brexit was no longer the greatest risk to UK financial stability, thanks in part to preparations made by the central bank before the June vote.
“With respect to financial stability risks from the EU referendum, we did help make the weather,” Carney said.
“In the run up to the referendum, we thought it was the largest risk because there was a series of positions and possibilities in the financial sector,” He added. “Having got through the night, and the day after, the scale of the immediate risks has gone down.”
The Governor also said that the balance or risks had now shifted to the EU, because London handled so much financial activity essential to the continent.
“The financial stability risks around that process are greater on the continent than the uk, in the short term for the transition,” Carney said.