By Paul Hannon 

The British pound could weaken significantly if the U.K. were to leave the European Union without a new trade agreement, one of the Bank of England's deputy governors told lawmakers Wednesday.

Testifying to lawmakers during his reappointment hearing, Jon Cunliffe said the currency "could see a big fall" if it became clear that the U.K. was going to leave without an agreed framework for trading with the bloc.

"At some point, when the true Brexit is revealed, I'm pretty sure you'll see the exchange rate move," he said. "If a kind of bad Brexit outcome happens, we'll see something on the exchange rate."

Mr. Cunliffe all but ruled out an intervention in the foreign exchange markets to support the currency should it slide.

"Currency intervention to maintain an exchange rate is not something that is particularly effective in modern markets," he said, in response to a lawmaker's question. "Intervening in the exchange rate is not really part of my thinking."

The pound fell sharply after the U.K. voted to leave the European Union in June 2016, pushing inflation higher and squeezing incomes. The BOE has raised its key interest rate twice since November 2017 after cutting borrowing costs following the Brexit vote. It has said those moves assume a "smooth" Brexit.

Mr. Cunliffe's warning came as Prime Minister Theresa May prepared to meet the leaders of the other 27 members of the EU during a summit that had been billed as an important steppingstone toward a deal. However, the talks hit a stalemate at the weekend over the Irish border.

(END) Dow Jones Newswires

October 17, 2018 11:55 ET (15:55 GMT)