British Prime Minister Theresa May has said the UK will seek a post-Brexit transitional period and pay into the EU budget until 2020 – but is leaving the Single Market.
In her much-heralded speech in Florence, Mrs May also pledged to protect the status of EU citizens living in the UK.
She said UK courts would “take into account” judgments by the European Court of Justice (ECJ) over their rights.
The EU's chief negotiator, Michel Barnier, welcomed the "constructive spirit" of Mrs May's speech and her "willingness to move forward", but said more detail was needed on her proposals.
Sterling took an early hit in live markets as the prime minister confirmed Britain would be leaving both the Single Market and the European customs union.
But her commitment to what she called an ‘implementation period’ after Brexit in 2019, and to keep paying into EU coffers – though without putting a figure on how much – saw the pound recover most of its early losses.
Sterling closed at around the €1.13 mark, and also maintained its recent strong run against the dollar, closing at $1.35 – down about half a cent on the day.
Bespoke new agreement
In her speech, Mrs May called for a bespoke new trading agreement with the EU.
She ruled out remaining in the European Economic Area – the so-called Norway option – which requires membership of the Single Market, and accepting EU regulation over which the UK would have no control.
The prime minister also dismissed a Canadian-style free-trade deal with the EU. She said as a member of the EU, the UK had the unique advantage that all its trading regulations were already harmonised with Europe.
“We can do so much better than this,” she said.
“The UK is the EU’s largest trading partner, one of the largest economies in the world, and a market of considerable importance for many businesses and jobs across the Continent.
“And the EU is our largest trading partner, so it is in all our interests to find a creative solution.
“There is no need to impose tariffs where we have none now, and I don’t think anyone sensible is contemplating this.”
In what could be seen as an olive branch to Brussels, Mrs May said EU citizens would continue to be able to enter the UK to live and work during the implementation period. They would, however, be subject to a registration scheme.
The prime minister said a period of transition would give “businesses and people alike the certainty that they will be able to prepare for the change”, but said there must also be “a guarantee that this implementation period will be time-limited, giving everyone the certainty that this will not go on for ever”.
She said many practical issues would need to be resolved, not least a new immigration system to control UK borders.
She added: “As of today, these considerations point to an implementation period of around two years”.
Mrs May pledged to honour financial commitments made during the UK’s membership of the EU, and promised no other member state would be affected by Brexit “over the remainder of the current budget plan” – which ends in 2020, a year after Brexit.
She also said the UK would continue to take part in, and contribute to, the EU’s science, education and culture programmes, and called for “a bold new strategic agreement” on future security, law enforcement and criminal justice co-operation.
Michel Barnier, responding shortly after Mrs May's speech, said the prime minister had "expressed a constructive spirit which is also the spirit of the European Union during this unique negotiation".