Bank of England governor Mark Carney has said that a no-deal Brexit will not hit the UK economy as badly as originally feared, as preparations for a disorderly exit have shored up the economy.
Carney said "real progress" had been made in this area since last November, although he reiterated there are "material risks" to economy if the UK crashes out of the European Union on 31 October without a deal.
According to the Guardian, Carney told MPs on the Commons Treasury committee: "There is real progress on the ground, there is real progress in the financial system, and that has some positive knock-on effect on confidence and financial markets as a whole."
Carney said "the impact of that has been to reduce, in our judgement, the worst-case scenario", but added that "there is more preparation that can be done."
Last November, the central bank issued a warning that a disorderly exit from the EU could cut Britain's GDP by 8% by triggering a recession that would be worse than the financial crisis.
But even under the less severe scenario now considered by the Bank, Carney said GDP would suffer a 5.5% hit in the event of a no-deal, while unemployment is expected to shoot up to 7%. The Bank also expects inflation to more than double to 5.5%.
Commenting on the preparations by the UK government for the worst case scenario, Carney said "the impact of that has been to reduce, in our judgement, the worst-case scenario", but added that "there is more preparation that can be done".
Meanwhile, the BoE governor has also suggested he would not intervene in currency markets to stop sterling from nosediving in a no-deal scenario, despite recent falls in the currency to its lowest level in 34 years.
He said: "I would underscore that we never have done it. I can't see a circumstance that we would intervene, either for market functioning purposes - never say never on that - but I would at least on a personal basis say never for monetary policy reasons."
This article was first published by Investment Week. Subscribe to International Investment's free, twice-daily, newsletter