Mark Carney warns of Brexit ‘shock’ for Britain as May faces new blow over trade

Support: Mark Carney said the Bank was preparing for “whatever deal we have”: Rex Features

Bank of England governor Mark Carney warned of a Brexit “shock” to Britain’s financial backbone amid reports that Brussels has thrown out Theresa May’s bid for a bespoke free trade deal.

Papers leaked in Brussels suggest that European Union leaders were flatly rejecting Mrs May’s vision of a comprehensive free trade deal after Brexit covering goods and financial services.

The documents, described as scoping papers for Michel Barnier’s negotiation team, conclude that Britain’s insistence on leaving the single market and customs union ruled out continuing trade on current terms, according to the Politico news service.

Moreover, they reportedly state that a standard trade deal would offer “no direct branching in areas like financial services” and only “limited EU commitments to allow cross-border provision of services”.

Downing Street shrugged off the report, saying Mrs May was still confident of getting a “unique” trade agreement based on the fact that Britain already has the same rules and standards as the rest of the EU.

“We are coming to this from a unique position,” said an official, who highlighted warm comments about the prospects for a future deal made by Manfred Weber, an ally of Angela Merkel, during a visit to No 10 yesterday.

“We already have alignment with the EU, and that is the basis for a deal that is in their interests and ours.”

But critics of a hard Brexit said the papers showed it was reckless for the Government to insist on leaving the single market and customs union.

Former business minister Anna Soubry said: “The reality is we are not going to get a bespoke deal. But that doesn’t mean we have to have to suffer a hard Brexit: There is a third way, which is to have a model like Norway.”

Eloise Todd, of anti-Brexit pressure group Best for Britain, hit out: “Thousands of jobs in finance and in the City are at risk as the government cannot deliver on its promises.

“The only truly bespoke EU deal available to the UK is the one it took 40 years negotiating: our current arrangements.”

Speaking on GMTV, Mr Carney said the decision to leave the EU had already turned Britain into the “slowest growing economy” in the global league table.

He promised the Bank would support the economy and make sure “the core of our financial systems — the banks, the building societies up and down this country — can withstand whatever shock might come with whatever type of deal we have”.

Mrs May was flying to Gothenburg this afternoon for talks and an EU summit on social reform, taking the opportunity to press for trade talks to be started.

She has signalled that Britain will increase its cash “divorce payment” offer significantly — with an extra £20 billion being mooted — in return for an early decision to begin negotiations on trade in the New Year.

Mr Weber, who heads the biggest centre-Right grouping in the European Parliament, said he was “more optimistic” of a breakthrough after seeing Mrs May last night.