Bank of England Governor Mark Carney said the bank is prepared to face all potential outcomes of Brexit and the policy response will not be automatic.
In a lecture at the Central Bank of Ireland on Friday, Carney said the UK central bank is well-prepared for whatever path the economy takes, including a wide range of potential Brexit outcomes.
The stress test ensures that the largest UK banks can meet the needs of households and businesses even through a disorderly Brexit, however unlikely that may be, he said in Dublin.
“Our job, after all, is not to hope for the best but to plan for the worst,” Carney added.
At a cabinet meeting on Thursday, chaired by Prime Minister Theresa May, Carney compared the outcome of a no-deal Brexit with the 2008 financial crisis.
He warned that house prices would fall up to 35 percent and unemployment would surge.
The bank will respond to any persistent change in the outlook to bring inflation sustainably back to 2 percent target, the BoE chief said Friday.
The appropriate policy response is not automatic and will depend on the balance of the effects on demand, supply and the exchange rate, Carney said.
Developments regarding the UK’s withdrawal from the EU are having the most significant influences on the economic outlook, Carney noted, adding that the Brexit effect on supply may be much more immediate.
The central banker observed that uncertainty around Brexit has had an additional dampening effect on pay growth.
The BoE Governor has not ruled out a no-deal Brexit and has warned earlier that the economy would suffer a shock if that is the case.
Chancellor Philip Hammond had extended the term of Carney as the BoE chief until the end of January 2020 to support a smooth Brexit and transition.
On Thursday, BoE policymakers had unanimously decided to maintain the interest rate at 0.75 percent and quantitative easing at GBP 435 billion.