Mark Carney has warned the chances of a no deal Brexit are “uncomfortably high”.
The Bank of England Governor said on Friday morning such an outcome was “highly undesirable”.
Speaking to BBC Radio 4′s Today programme, he said politicians must “do all things to avoid it”.
Carney said if the UK failed to strike a trade deal with the EU it would mean “higher prices for a period of time” for British consumers.
Pushed on what no deal would mean for people, Carney said “disruption to trade as we know it” before adding: “As a consequence of that, a disruption to the level of economic activity, higher prices for a period of time.
“Our job at the Bank of England is to make sure those issues don’t happen in the financial system so that people will have things to worry about in a no-deal Brexit, which is still a relatively unlikely possibility but it is a possibility, but what we don’t want to have is people worrying about their money in the bank, whether or not they can get a loan from the bank – whether for a mortgage or for a business idea – and we have put the banks through the wringer well in advance of this to make sure they have the capital.”
Carney, pressed on whether the preparations were to guard against a run on the bank, said it was the “exact opposite”, to ensure the banks can lend to the economy to “advance not retreat”.
His intervention came as Theresa May cut short her holiday to meet Emmanuel Macron in France as she intensifies efforts to win over support in Europe for her Brexit plans.
The prime minister is meeting the French president at his summer retreat, Fort de Bregancon, on a small island off the Mediterranean coast.
After the hastily arranged talks, May and her husband Philip will join the president and his wife Brigitte for a private dinner.
Brexit Secretary Dominic Raab held talks with his counterparts in Paris on Thursday.
But the UK’s former ambassador to France has warned the premier not to expect a Brexit breakthrough in the talks.
Lord Ricketts said Macron was “the last person” to want to break ranks with the rest of the EU to push for a softer stance from Brussels.
Macron “doesn’t believe in softening” the position on Brexit as “he is a passionate pro-European”, the peer said.