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London (AFP)

Bank of England Governor Mark Carney warned Friday that the possibility of a no-deal Brexit was "uncomfortably high" and "highly undesirable" but still "unlikely" compared to other outcomes.

"The possibility of a no-deal is uncomfortably high at this point," Carney told BBC radio.

Carney, who is due to step down next year after Britain leaves the European Union as scheduled in March, said no-deal was "a relatively unlikely possibility but it is a possibility".

Brexit negotiations are "entering a critical phase", he said, speaking ahead of a meeting between British Prime Minister Theresa May and French President Emmanuel Macron later on Friday.

Carney said Britain's financial system would in any case be able to "withstand the shock" as banks have increased capital and liquidity and contingency plans have already been put in place.

"We've already done the stockpiling," he said.

"Our job is to look at what could go wrong, what are the bad outcomes that could happen... so it lessens the impact of a bad deal, a no-deal Brexit in this case," he said.

A no-deal Brexit would "mean disruption to trade as we know it and as a consequence of that a disruption to a level of economic activity, higher prices for a period of time," he added.

Carney revealed that banks had been stress-tested for property prices falling by more than a third, interest rates going up by almost four percentage points, unemployment rising to 9.0 percent and the economy entering a 4.0 percent recession.

"The financial system will be ready," he said.

© 2018 AFP