"The possibility of a no deal at the moment is uncomfortably high".
The pound made gains versus the euro following the rate increase up by almost 0.3% at 1.128, but was still trading lower by around 0.1% against the USA dollar at 1.311. Officials say there is a growing chance no deal will be struck before the United Kingdom leaves in March.
Britain would be forced to revert to trading under World Trade Organisation rules it fails to reach an agreement on the terms for its exit from with the European Union in March 2019.
Supporters of Brexit say there may be some short-term pain for Britain's $2.9 trillion economy, but that long-term it will prosper when cut free from the EU, which some of them cast as a failing German-dominated experiment in European integration.
Failure at any of those three hurdles could cost May her job.
Carney said Britain's financial system would in any case be able to "withstand the shock" as banks have increased capital and liquidity and contingency plans have already been put in place.
His comments drew the ire of Brexit campaigners, who have long criticized Carney for sounding downbeat. He told the BBC that a no-deal Brexit would mean disrupted trade and higher prices and was "highly undesirable".
This week's 0.25 percentage point rise on the base interest rate could spell the end of cheap money for borrowers and rock-bottom interest for savers - if the banks pass the Bank of England's rise on to consumers.
The report showed its predictions are based on financial market expectations for rates to rise to 1.1 per cent by mid-2021, which would suggest two more quarter-point rises, with the next not until next May. [PA] Mr Carney said Brexit was a cloud on the horizon, but added the bank is "well prepared for whatever path the economy takes, including a wide range of potential Brexit outcomes".
The Bank had backed away from a rate rise earlier this year after growth slowed down sharply to 0.2 per cent in the first quarter, but said the economy had recovered as predicted.