The UK central bank’s test assessed the resilience of the country’s economy in a worst case scenario no-deal Brexit alongside global recession and a fall in worldwide GDP bigger than that seen during the financial crisis a decade ago.

The test found that, while Britain’s financial system had prepared for a no deal Brexit and ensured its borrowers will have access to European banks, governments on the other side of the English channel were under-prepared.

This means borrowers in EU countries could face higher costs and disruption if London and Brussels fail to reach a deal. They could be cut off from £20trn-worth of derivatives in the UK, affecting loans such as fixed-rate mortgages.

Cross-border disruption

The impact of any turmoil could come full circle, the bank said, as disruption in the EU may affect financial stability in the UK.

The Bank of England said: “Some disruption to cross-border services is possible and, in the absence of other actions by EU authorities, some potential risks to [UK] financial stability remain.”

The UK is set to leave the EU on 29 March. British MPs will vote on Theresa May’s Brexit withdrawal deal by 12 March and, if it is defeated, the prime minister has said they will have the chance to vote on ruling out a no-deal Brexit the following day.