Johnson, who is expected to defeat Foreign Secretary Jeremy Hunt in the election to become the next Conservative Party leader and British prime minister, has said Britain can rely on a provision in international trade rules to make sure trade relations remain unchanged.
However, Carney told the BBC that was not possible if there was no deal between the EU and Britain. Carney said the legal provision — in the General Agreement on Tariffs and Trade — "applies if you have an agreement, not if you have decided not to have an agreement or have been unable to come to an agreement."
Carney says the U.K. would automatically be hit by tariffs as the Europeans would have to apply the same rules to Britain as every other country outside the tariff-free EU. "If they were to decide not to put in place tariffs, they will also have to lower tariffs with the United States, with the rest of the world," he said. "And the same would hold for us."
On Thursday, the Bank of England warned after a policy meeting that the likelihood of a 'no-deal' Brexit has increased. Though Britain's departure date from the EU has been pushed back to Oct. 31, there is still huge uncertainty as to whether the country will leave then.
The Conservative Party contest to replace Theresa May has delayed progress on Brexit in recent months and concerns are rising that Britain could crash out without a deal on future relations with the EU. Johnson has indicated that he's prepared to go ahead with a 'no-deal' Brexit.
EU leaders, meanwhile, have underlined that their divorce agreement with Britain — rejected three times by lawmakers in London — cannot be renegotiated regardless of who becomes the next prime minister.
At a summit of EU leaders on Friday, Luxembourg Prime Minister Xavier Bettel said the current Brexit agreement "is the best possible deal" and that "it's not possible (that) because you change the leader in the U.K. that we need to postpone decisions."
EU leaders are due later Friday to briefly discuss political developments in Britain with some arguing that any further Brexit extension should only be granted in Britain has an election or another Brexit referendum.
Carney indicated there's only so much firms can do to offset the impact of tariffs. Three quarters of firms, he said, have done as much as they can, which in some cases may not be much. Firms built up stocks in the run-up to the initial Brexit deadline of March 29 to be able to continue to operate in case of a 'no-deal' Brexit, but that only covers a few weeks, Carney said.
Businesses are far more dependent on what the government can do to keep ports open and trade flowing. "No deal means no deal. It means a substantial change in the trading relationship with the European Union," he said. "That may be the choice the country takes but it's a choice that should be taken with absolute clarity in terms of what that means."
Most economists think a sharp rupture with the EU, which accounts for around 50% of Britain's trade, will lead to a deep recession. On Thursday, Britain's Treasury chief, Philip Hammond, said the costs of a "no-deal" Brexit would be huge.
He said such an outcome would damage the British economy and ultimately risk the breakup of the U.K., a reference to tensions in Scotland and Northern Ireland, both of which voted to stay inside of the EU.
Danica Kirka in London and Lorne Cook in Brussels contributed to this report.
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