By Paul Hannon 

The Bank of England could forgo planned rises in its key interest rate, or even ease policy, if the U.K.'s departure from the European Union were to be "sharper" than it expects, Gov. Mark Carney said Thursday.

The BOE has said if the economy grows around 1.75% a year, it would raise its key rate up to three times over coming years. However, that path for policy assumes what the BOE calls a "smooth" Brexit, involving a transition period that gives businesses and households time to adjust to a new trading relationship between the U.K. and the EU.

But in a speech to economists, Mr. Carney said the central bank could abandon its plans for rate increases if there were no transition period or the exit agreement left the U.K. facing high barriers to trade with the bloc.

"A sharper Brexit could put monetary policy on a different path," he said.

Mr. Carney didn't set out the precise moves the central bank's Monetary Policy Committee would take in the event of a more jarring departure, but he pointed to its actions in the months following the surprise vote to leave the EU in June 2016 as a guide.

"To understand the MPC's potential response, businesses, households and market participants can draw on the Committee's track record of managing the trade-off that emerged after the referendum, since exactly the same framework would apply," he said.

To support economic growth, the BOE cut its key interest rate to a record low of 0.25%, from 0.5%, in August 2016, and restarted a dormant bond-buying program known as quantitative easing. It reversed that rate move in November 2017 in an effort to tame inflation, which had risen above its 2% target largely due to the pound's depreciation in the wake of the Brexit vote. The depreciation raised the prices of imported goods and services.

"From a monetary policy perspective, the Bank of England is ready for Brexit whatever form it takes," Mr. Carney said.

Mr. Carney said the Brexit vote already had weakened economic growth, and estimated output would have been between 1.75% and 2% higher without the uncertainty created by that decision. He also said average annual household incomes are GBP900 ($1,203) lower than they would have been had Britons not chosen to leave the EU.

The U.K. and the EU have yet to agree to the terms on which the former will leave the bloc in March 2019, although a transition period is currently envisioned by both sides.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

May 24, 2018 15:24 ET (19:24 GMT)