Mark Carney will remain Bank of England governor until the end of January 2020, Chancellor Philip Hammond has told MPs.
Mr Hammond said the seven-month extension would “support a smooth exit” from the European Union.
The extension was agreed in an exchange of letters between the governor and the chancellor published on Wednesday.
Mr Carney said he was “willing to do whatever I can in order to promote both a successful Brexit and an effective transition at the Bank of England”.
The governor had been due to step down from the role at the end of June 2019 – two years short of the usual eight-year term.
The Canadian replaced Mervyn King in 2013, becoming the first non-Briton to be appointed governor in the Bank’s 300-year history.
Mr Hammond told the Commons that the early part of summer 2019 “could be quite a turbulent period for our economy” following the UK’s scheduled departure from the EU on 29 March.
Mr Carney had agreed “despite various personal pressures” to stay on until January 2020 to “help support continuity in our economy during this period”, the chancellor said.
The extension will give the government more time to recruit his successor, amid concern that few candidates would want to take on the role during an unpredictable stage in the Brexit process.
Sir Jon Cunliffe, Bank of England deputy governor with responsibility for financial stability, has also been re-appointed for a second five-year term that will last until October 2023.
Bradley Fried, chair of the Bank’s Court of Directors, welcomed their decisions to stay on: “Continuity in the outstanding leadership they provide will help the Bank succeed in our crucial work.”
Nicky Morgan, chair of the Commons Treasury committee, said the announcement provided “much-needed stability and clarity”.
“The government should now use the extra seven months to continue its succession planning. It should identify a candidate in good time for the Treasury committee to scrutinise the appointment,” she added.
Mr Carney gave evidence last week to the Treasury committee when he said that “providing a measure of continuity during this period” was important.