The European Union's financial system will come off worse in a no-deal Brexit, Mark Carney told MPs, as another chaotic day in Parliament threatened to tip Britain closer to a scenario he said would also have “big economic consequences” at home.

The Governor of the Bank of England warned that the negative consequences on the continent of failure to agree terms would be “cold comfort” for Britain as the City would effectively be cut off from EU.

Mr Carney gave evidence to the Treasury Select Committee, chaired by leading Remain rebel Nicky Morgan, that the consequence on the continent of no deal would be “extreme fragmentation of the European capital market”.

“There’ll be a shortage of capital collateral capacity in the EU without question, which will take some time to adjust to”, Mr Carney said.

The Governor has described Britain as the EU’s banker, and his latest comments follow earlier warnings to Brussels that a drawbridge-style block to trade in financial services could have dramatic consequences.