By Jason Douglas and Nicholas Winning

LONDON -- Bank of England Gov. Mark Carney plans to serve an extra year as head of the British central bank, in a surprise compromise meant to allow him to steer the U.K.'s economy beyond its exit from the European Union.

In a letter to Treasury chief Philip Hammond on Monday, Mr. Carney said that he would be "honored" to serve as governor until June 2019 -- a year longer than he initially pledged to serve as central bank governor but still two years short of a full eight-year term.

Speculation has been rife about how long Mr. Carney would stay in the position. The central banker's supporters say his strong response to the June referendum result avoided market panic that could have endangered the world economy. But he has faced strident criticism and calls to resign from some euroskeptics for what they call scaremongering about the potential costs of leaving the EU.

The decision is meant to ensure he will stay through the completion of Britain's negotiations to exit from the EU. Prime Minister Theresa May has said she would formally trigger Article 50 of the EU's Lisbon Treaty by the end of March, opening a two-year window for negotiations.

"By taking my term in office beyond the expected period of the Article 50 process, this should help contribute to securing an orderly transition to the UK's new relationship with Europe," Mr. Carney wrote.

Britain's exit from the bloc could be delayed, however, if an agreement isn't reached in the two-year time frame and EU member states unanimously decide to extendthe negotiating window.

Richard Barwell, a senior economist in London at BNP Paribas Investment Partners, said Mr. Carney had done the U.K. a favor by staying on. But he added that the two-year window to unwind the country's existing relationship with the EU and forge a new one might not be long enough, given the likely complexity of talks.

"When he walks out the door, it won't be plain sailing," he said.

Mr. Carney, who headed Canada's central bank before his appointment to the BOE, agreed to take the job in 2013 on the understanding he would serve only five years of the normal eight-year term. But last year, the Canadian said he had more to accomplish and opened the door to staying longer, fueling speculation that he would stay until 2021.

Monday's compromise, he said in his letter to Mr. Hammond, reflected his personal situation. He has previously said staying beyond 2019 risked disrupting his children's schooling."My personal circumstances have not changed, but other circumstances clearly have, most notably the U.K.'s decision to leave the European Union," he wrote.

Mr. Hammond hailed the decision. "This will enable you to continue your highly effective leadership of the bank through a critical period," he responded in a letter to Mr. Carney.

Mrs. May, who earlier Monday affirmed her support for Mr. Carney in a rebuke to Brexit hard-liners, said the decision was good news that "will provide continuity and stability."

Still, signs of possible tensions with Mrs. May surfaced after her speech at the Conservatives' party conference in early October, in which she criticized the BOE's easy-money policies. Mr. Hammond later clarified that the government had no plans to change the BOE's inflation-fighting remit or dilute its cherished independence.

The British pound slipped 0.2% against the dollar early Monday following media reportsover the weekend speculating on Mr. Carney's plans. But the currency reversed those losses later in the day and rose further after Mr. Carney's announcement, trading up 0.4% at $1.2241.

Downing Street said that Mrs. May and Mr. Carney spoke earlier on Monday in a meeting that had been scheduled for some time. "The prime minister has always had a good working relationship with the governor of the Bank of England and intends to continue that," Mrs. May's spokeswoman said.

Mr. Carney and his colleagues will decide whether they need to ease policy further on Thursday, after cutting the benchmark interest rate to a new low of 0.25% and reviving a crisis-era bond-buying program in August to cushion the economy from a potential Brexit shock.

Martin Sorrell, chief executive of WPP PLC, which owns advertising agencies such as Ogilvy & Mather and Grey, said he was disappointed Mr. Carney didn't plan to stay beyond 2019.

"I supposeone extra year is better than nothing, but I think it is a pity," Mr. Sorrell said in an interview. "He has done a good job, and I think the longer he did it the better it would be."

--Simon Zekaria and Riva Gold in London contributed to this article.

Write to Jason Douglas at jason.douglas@wsj.com and Nicholas Winning at nick.winning@wsj.com

(END) Dow Jones Newswires

October 31, 2016 16:59 ET (20:59 GMT)

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