Britain leaving EU in 'Brexit' a risk to U.K. economy, Mark Carney warns

The head of the Bank of England described Britain's potential exit from the European Union as the single biggest domestic risk to the nation's economy even as he insisted the bank would remain neutral in the debate.

In testy exchanges with members of a House of Commons committee, Governor Mark Carney tried to dodge every effort to pin him to a position that either the "in" or "out" campaigners might use ahead of a June 23 referendum on EU membership.

Carney's testimony was important in a debate where economic data is bantered about with abandon and facts are often in dispute. Carney refused to make a recommendation, but it was clear from his testimony that the vote was fraught with risk.

"The issue is the biggest domestic risk to financial stability because, in part, of the issues around uncertainty," Carney said. The debate over continued EU membership also has the potential to "amplify risks" surrounding trade and investment, housing and financial markets, he said.

However, he said international risks, such as recent volatility in China, were a greater problem for Britain's economy.

Firms may relocate

Carney said that "without question" Britain's financial center would lose business if the nation decides to leave the EU but fails to negotiate mutual recognition agreements to replace the current "passport system," which allows financial professionals to work freely throughout the 28-nation EU. He also said he was aware that some financial firms were making contingency plans to relocate should Britain vote to leave the EU.

Underscoring concerns about the vote, the bank on Monday announced that it would offer more liquidity to financial institutions amid fears for the markets during the time of the referendum. The bank said indexed long-term repo (ILTR) operations would be held on June 14, June 21 and June 28.

"These operations are additional to the regular ILTR operations which will continue to take place once a month," it said in a statement.

The bank said it "will continue to monitor market conditions carefully and stands ready to take additional action if necessary."

Despite heated questioning from lawmakers backing the campaign to leave, Carney stressed that the bank would remain focused on safeguarding financial and monetary stability and that it wouldn't be drawn into taking a stand on EU membership.

One of the more tense exchanges involved lawmaker Jacob Rees-Mogg, who accused Carney of damaging the bank's reputation by making pro-EU comments.

"It is beneath the dignity of the Bank of England to be making speculative pro-EU comments," Rees-Mogg said.

Carney shot back and challenged his analysis: "I'm not going to let that stand."

He also rejected any notion that Prime Minister David Cameron or his office might have influenced his testimony.

"We are expressing views that are the views of the institution," he said. "We are not leaned on by anybody.

"It would have no effect if they tried."