The governor of the Central Bank of England (ECB) Mark Carney said the UK economy was stagnating this quarter, and hidden growth continued to appear anaemic even with the volatility effect of Brexit.

Speaking at an economic forum in Jackson Hole, USA, in the presence of central bankers around the world, Mark Carney said that a snapshot of the UK economy shows that “it is close to equilibrium, operating slightly below its potential”.

The UK economy contracted in the three months to June for the first time since the global financial crisis. The reason was largely due to the growth in activity earlier in the year when companies were anxiously preparing for the initial Brexit deadline.

Earlier this month, the ECB forecast growth of 0.3% over the current calendar quarter. But business surveys in August drew a darker picture.

“The UK economy contracted slightly last quarter and surveys show stagnation this quarter. Given the volatility associated with Brexit, hidden growth may be positive but anaemic”, said Mark Carney.

However, the UK job market remains strong with unemployment near record highs and the fastest wage growth in 11 years.

Mark Carney said the momentum of the global economy remains slow, despite rising market expectations that central banks around the world will soften its policy. However, the outlook for the UK economy is mainly about how and when Brexit will happen.

The new prime minister, Boris Johnson, has pledged to move the country out of the EU on October 31, even if it means leaving without a deal, which could seriously disrupt supply chains and trade ties.

Poor business investment is the most obvious consequence of uncertainty about when and how the UK will leave the EU, Carney said.

“There are clear signals that this is a direct result of the uncertainty surrounding the UK’s future trade relations with the EU and serves as a warning to others of the potential impact on business confidence and activity from persistent trade tensions”, said the BoE governor. He reiterated his opinion that the central bank is likely to soften its monetary policy to help the economy in the event of a Brexit without a deal, although there are limits to how far it can tolerate a rise in inflation triggered by a downtrend.

While agreeing that the risk of Brexit without a deal has grown, Carney said nothing is known yet.

If the UK and EU reach an agreement before the deadline, it will likely require a limited and gradual increase in interest rates, he said, reiterating the BoE’s longstanding interest rate message.