The head of the Bank of England has warned that a no-deal Brexit will deliver an "instantaneous" shock to the British economy with major industries becoming "uneconomic."

Mark Carney said failure to reach a deal would see price increases for essential items like food and petrol.

He was speaking after the Bank of England (BOE) warned that uncertainty over Brexit had seen a "marked depreciation" in sterling.

The bank said the UK economy would grow less than it had expected this year regardless of what happens with the UKs exit - and did not say what would happen in a no-deal scenario.

Governor of the Bank of England, Mark Carney, at the Bank of England interest rate decision and inflation report in London, 01-08-2019. Image: Chris J Ratcliffe/PA Wire/PA Images

Brexit

Speak on BBC Radio 4 this morning, Mr Carney said leaving without a deal would deliver a "real economic shock" to the UK economy.

"With no deal the shock to the economy is instantaneous and instantly you have these supply disruptions.

"Not just disruption, I am not just talking about just the issues at the ports - which are real - but you actually have businesses that no longer are economic."

"Uneconomic"

Pressed on how many businesses might be affected he said, "potentially it is a substantial number and that has to be taken into account."

He said Britain's economy has already slowed because major businesses have stopped borrowing and investment is "very, very weak" due to uncertainty around the process.

"The economics of no-deal are that the rules of the game for trade and exporting to Europe or importing from Europe fundamentally change," he said.

"There are some very big industries in this country where that which is highly profitable becomes not profitable, becomes uneconomic, and very difficult decisions will need to be taken.

"That has knock-on effects on the economy in the short term."

Food prices

He also warned failure to reach a deal would see incomes fall and food and petrol prices increase.

“It is reasonable to expect – the markets are absolutely clear on this – that in the event of a no deal the exchange rate would go down for a period of time,” he said.

“The area of the economy where that instantly translates into prices is in the forecourt of the petrol station, and in food and veg.”

File photo of Iain Duncan Smith outside the House of Commons in London, 17-07-2001. Image: Toby Melville/PA Archive/PA Images

It comes after the former Conservative leader Iain Duncan Smith said the Bank of England's warnings should be taken with a "massive pinch of salt" and accused Mr Carney of being "one of the architects and promoters of 'project fear.'"

"Not helpful"

Mr Carney said it is "not helpful" to downplay what will happen in a no deal scenario.

"It is not helpful to downplay the challenges in terms of logistics," he said

"Whether they’re at the ports, whether they’re in the plumbing of the financial system, whether they have to do with personal data, and on and on.

"It is also not helpful to deny that shifting from the most integrated economic relationship in the world - which is being a member of the European Union - to a new relationship that is potentially just a WTO relationship; that if we move to that overnight, that wouldn’t have an effect on the economy."