A worst-case no-deal Brexit would inflict less severe damage on the UK economy than previously thought because of preparations undertaken since the end of last year, Bank of England Governor Mark Carney said.
Mark Carney also said there was almost no chance of the Bank of England reversing its hands-off stance on sterling by intervening in foreign exchange markets to support the pound if it fell sharply after Brexit.
Britain is approaching its October 31 deadline for leaving the European Union.
Mr Carney said the bank now estimated the economy would shrink by 5.5% in the event of a chaotic Brexit involving border chaos and a flight from British assets.
That was less steep than the 8% hit seen in a set of scenarios published in November, but would still represent a major blow to the world's fifth-biggest economy and Mark Carney repeated his call for a transition deal to smooth Brexit.
"Every single trade deal signed in the last four years has at least an 18-month transition," Carney told UK politicians.
"This is a trade deal in reverse which in many respects is harder. It is clearly undesirable to have that adjustment overnight," he stated.
The Bank of England said progress on simplifying procedures customs checks, new infrastructure at the French port of Calais and Britain's plan to impose zero tariffs on 87% of imports would help lessen the blow.
Other preparations included a drive by the government to auto-enrol companies in a registry of firms doing business with the EU and progress on avoiding disruption in derivatives markets, it said.
At a question-and-answer session with lawmakers, Mark Carney was asked how far sterling would have to fall before the Bank of England might intervene in financial markets to support it.
"I would underscore that we never have done it," Mr Carney said, recalling how the pound fell sharply after the 2016 Brexit referendum result but adjusted quickly to the prospect of Britain leaving the EU.
"I can't see a circumstance that we would intervene, either for market functioning purposes - never say never on that - but I would at least on a personal basis say never for monetary policy reasons," he said.
The Bank of England can deploy a relatively small foreign exchange fund for monetary policy purposes, which had gross assets of $23.6 billion as of the end of August, according to official data published earlier this week.
But at the direction of the government, the Bank of England can deploy the British government's foreign exchange reserves, worth $174.4 billion in gross terms at the end of August.