By Costas Pitas
LONDON (Reuters) - Britain's property market would crash and mortgage rates would spiral in the event of a chaotic no-deal Brexit, with house prices falling 35 percent over three years, Bank of England Governor Mark Carney told ministers, The Times reported.
Recent signals from Brussels have buoyed hopes that Britain and EU authorities can agree and approve a proper deal before it leaves on March 29, though the sides are still divided on about one fifth of the detail of a deal.
But many business chiefs and investors fear politics could get in the way, thrusting the world's fifth largest economy into a "no-deal" divorce they say would weaken the West, spook financial markets and clog up the arteries of trade.
As Prime Minister Theresa May tries to clinch a deal with Brussels, she is facing rebels in her Conservative Party who say they will vote down any agreement that fails to deliver a sharp break with the EU.
In a stark warning to the British cabinet, Carney told ministers including May that the impact of a no-deal Brexit could be as catastrophic as the 2008 financial crisis, according to The Guardian newspaper.
Carney, whose term of office was this week extended until January 2020 to help smooth the post-Brexit transition, told ministers a chaotic departure would lead to a plunge in sterling that would drive up inflation and interest rates, The Times reported.
Further, the Bank of England would be unable to soften the crisis by cutting interest rates, Carney told ministers, according to the Financial Times.
Carney, a former Goldman Sachs banker, has run the Bank of England since 2013. He gained respect from investors for his actions to calm markets in the immediate aftermath of the 2016 Brexit vote.
In one note of optimism, Carney said that if May struck a Brexit deal on the basis of her Chequers proposals then the economy would outperform current forecasts because it would be better than the bank’s assumed outcome, the FT said.
The Bank of England declined to comment on the report when contacted by Reuters.
Britain's central bank stress-tested lenders against a 33 percent house price fall last year.
Supporters of Brexit accept there is likely to be some short-term economic pain but say Britain will thrive in the longer term if cut loose from what they see as a doomed experiment in German-dominated unity and excessive debt-funded welfare spending.
Opponents fear that leaving the bloc will weaken what remains of Britain's global influence, further undermine its reputation as a haven for investment and hurt the economy for years to come.
(Writing by Guy Faulconbridge, Reporting by Costas Pitas in London; additional reporting by Philip George in Bengaluru; Editing by Andrew Heavens and John Stonestreet)