Prime Minister Theresa May is under pressure to define the kind of trade pact she wants from the European Union after she dashed business expectations that a swift Brexit transition deal is within reach early next year.
Businesses want an urgent agreement that would allow them to trade as usual for two years after leaving the bloc, and U.K. officials have encouraged them to think that would be possible.
But May said Monday the transition would only be sealed as part of a wider deal, falling into line with what the EU has long maintained. The broader accord isn’t expected to be finalized until shortly before exit day in March 2019, and the U.K. hasn’t yet made clear what kind of trade arrangement it wants.
“The point of the implementation period is to put in place the practical changes necessary to move to the future partnership,” May told lawmakers in the House of Commons. “And in order to have that, you need to know what that future partnership is going to be.”
More than a year after the Brexit referendum, May’s cabinet has not yet reached agreement on what trade deal it wants, according to two government officials. Publicly at least, debates in the divided cabinet have been focused on whether any transition is even a good idea, and latterly on preparations in case there is no deal at all.
Opposition lawmakers criticized the prime minister for leaving companies in the dark as they try to make investment decisions. Surprised by May’s comments, they kept coming back at her with questions to make sure they had understood.
“The prime minister says she won’t agree transition arrangements until a final trade deal is done,” Yvette Cooper from the Labour Party said on Twitter. “At best that is next October. How on earth can business plan?”
May sidestepped questions from lawmakers about the failure of her cabinet to reach agreement on its preferred outcome. James Slack, the prime minister’s spokesman, later answered repeated queries from reporters on the subject by saying that “cabinet discusses Brexit, and all matters related to Brexit, regularly.” May has said she wants a “deep and special” partnership and as "frictionless" trade as possible, while leaving the EU’s single market and customs union.
Slack had earlier described a transition agreement as “a bridge to where you’re headed, so you need to know where you’re headed to finalize that implementation period.”
It’s a change from previous statements from officials including Chancellor of the Exchequer Philip Hammond, that businesses need a transition deal urgently and its value to them depends on getting it soon. Hammond answers lawmakers’ questions in Parliament Tuesday.
Businesses have said they need an agreement on the bridging period by the end of the first quarter at the latest, and the Bank of England’s head of supervision said it should be in place by Christmas.
The prime minister’s words bring her closer to the position of the European Commission, which has long held that a transition deal can’t be a “bridge to nowhere.” The EU’s negotiating guidelines state that “in accordance with the principle that nothing is agreed until everything is agreed, individual items cannot be settled separately.”
May first set out her vision for an implementation phase in a speech last month in Florence, Italy, in which she said she would seek a two-year period during which trading rules and regulations will remain the same, so companies only have to make one set of changes to adapt to Brexit. Linked to that request, she proposed paying into the EU budget for two years after the divorce.
At the EU summit last week, May was encouraged by a pledge from her counterparts, including German Chancellor Angela Merkel, that Brexit talks can move on to trade negotiations in December—as long as the U.K. improves its offer on a financial settlement with the bloc.
Merkel was said to be “furious” that May was undermined by negative comments in a leaked report of a private dinner with EU chief Brexit negotiator Michel Barnier and Commission President Jean-Claude Juncker published Monday, the Times of London reported, citing unidentified German officials.
Barnier said he’s confident the next phase of talks will start before the end of the year, according to an interview with Germany’s Handelsblatt newspaper published Monday. The “economic status quo” will continue for the U.K. “for a short time” after Brexit, he said, while it would be logical for a transitional phase to last until the end of the EU financial period in 2020. Any trade deal will be closer to Canada’s agreement with the EU than the U.K.’s existing arrangement, he told the Guardian.
May’s comments came just as businesses were stepping up their demands. Five organizations wrote to Brexit Secretary David Davis calling for an “urgent” transition deal that keeps rules as close as possible to the way they are now, Sky News reported on Monday.
“We are seeing evidence in the here and now of the challenge of uncertainty,” Confederation of British Industry Director-General Carolyn Fairbairn told BBC Radio. “The key thing that would unlock that uncertainty would be a transition deal agreed rapidly.”
Still, major financial institutions haven’t been waiting around for promises on transition to come good. Banks including Citigroup have already applied to EU regulators for permits, while others such as Goldman Sachs have signed leases on new offices outside Britain. Goldman Sachs CEO Lloyd Blankfein tweeted last week that he would be spending more time in Frankfurt.