Mark Carney defended the Bank of England’s assumption in its latest economic forecasts that Britain will avoid a no-deal Brexit, saying it’s still the government’s official position to reach an agreement with the European Union.

Speaking to reporters after the central bank left interest rates unchanged, Carney said that while the bank has prepared the financial system for a no-deal Brexit, that’s different than assuming it to be the most likely outcome. That position puts the governor at odds with investors who are increasingly pricing in the possibility that the U.K. will leave the bloc on with no withdrawal agreement in place.

The pound was down 0.4% at $1.2108 at 1:15 p.m. London time, near the weakest since early 2017.

Boris Johnson, who became prime minister last month, has said the chance of a no-deal outcome is a million to one but has also pledged to take the U.K. out of the EU with or without a deal on Oct. 31. The pound has tumbled as a result.

No-deal Brexit would likely lead to an increase in inflation and a hit to growth, Carney said. While businesses are doing what they can to prepare, they still expect their output to fall, he said. He also reiterated that the monetary policy response to Brexit isn’t automatic and could see rates move in either direction.

He was speaking after policy makers unanimously kept the benchmark interest rate at 0.75% and kept asset purchases unchanged.

The BOE is in wait-and-see mode, even as the world’s biggest central banks turn dovish amid slowing global growth and persistent trade tensions. The Federal Reserve on Wednesday delivered a quarter-point cut and suggested there’s more to come. The European Central Bank is looking at adding more stimulus as early as September.

Source : Bloomberg