LONDON (Reuters) - Britain will quit the European Union's single market when it exits the bloc, Prime Minister Theresa May said on Tuesday, in a decisive speech that quashed speculation she would seek a compromise deal to stay inside the world's biggest trading bloc.
Setting out a vision that could chart Britain's future for generations, May answered criticism that she has been coy about her plans with a direct pitch for a clean break, widely known in Britain as a "hard Brexit".
May promised to seek the greatest possible access to European markets. But she also said Britain would aim to establish its own free trade deals with countries far beyond Europe, and to impose limits on immigration from the continent.
For the first time, she acknowledged that those measures would require withdrawing from the market of 500 million people.
"I want to be clear: What I am proposing cannot mean membership of the single market," May told an audience of foreign diplomats and Britain's own Brexit negotiating team at a mansion house in London.
"Instead we seek the greatest possible access to it through a new comprehensive, bold and ambitious free trade agreement. That agreement may take in elements of current single market arrangements in certain areas," May said.
Since May was catapulted into the premiership after Britain voted to leave the EU last June, she has refused to spell out precisely what arrangement she would seek.
That left the country speculating on whether she would opt for a "soft Brexit" that would retain benefits of membership in return for keeping Britain still subject to some EU rules, or pursue a cleaner break. Businesses complained of uncertainty.
The media had been briefed on some of the points in May's speech since Sunday, and the expectation she would call for a sharp break had caused the pound to fall on currency markets from the start of this week.
However, markets rallied during her speech itself, especially when she made a new announcement that parliament would be given a vote on the final terms of Britain's exit, seen as a steadying influence. Sterling rose 2.5 percent against the dollar, the biggest rise since Dec. 2008
The Brexit talks, expected to be one of the most complicated negotiations in post-World War Two European history, will decide the fate of her premiership, the United Kingdom and possibly the future shape of the European Union itself.
BREXIT CLIFF EDGE?
For months May has weathered criticism that she has been too silent about her plans, arguing that giving too much detail would weaken Britain's negotiating stance.
May said she would not adopt models already used by other countries that have free trade agreements with the bloc, a clear rejection of arrangements seen as templates for a hypothetical "soft Brexit". Norway, for example, is outside the EU but a member of the wider European Economic Area, giving it access to the single market but subjecting it to many EU rules.
She outlined 12 negotiating priorities, including limiting immigration, exiting jurisdiction of the European Court of Justice, and ending full membership of the customs union that sets external tariffs for goods imported into the bloc.
Full membership in the customs union prevented Britain making its own trade deals, May said, but she still wanted a deal to keep trade with Europe as "frictionless as possible".
Britain will trigger the formal Brexit talks by the end of March, ushering in a two-year period of talks. May said she wanted the terms of Britain's exit to be agreed within those two years, with new rules implemented gradually where necessary.
"It is in no one’s interests for there to be a cliff-edge for business or a threat to stability, as we change from our existing relationship to a new partnership with the EU," May said. "We will seek to avoid a disruptive cliff-edge, and we will do everything we can to phase in the new arrangements we require as Britain and the EU move towards our new partnership."
NO DEAL BETTER THAN BAD DEAL
May delivered the most important address of her half year in power at Lancaster House, a stately government-owned mansion in central London where former Prime Minister Margaret Thatcher, set out British support for the single market in 1988.
Setting a firm tone for negotiations, May announced that Britain would exit the EU with no trade deal at all if it was not satisfied with what was on offer. "No deal for Britain is better than a bad deal for Britain," May said.
She also hinted that Britain could use tax breaks as a way to fight back to keep businesses, if the EU insisted on punitive tariffs: Britain would have the freedom to set competitive tax rates to attract global companies and investors, she said.
German Foreign Minister Frank-Walter Steinmeier welcomed May's speech but said that negotiations could only begin when Britain gave formal notification under Article 50 of the EU's Lisbon Treaty. The British Supreme Court is due to rule this month on whether May can trigger Article 50 without approval from parliament.
Her speech comes as Northern Ireland, the part of the UK most exposed to Brexit due to its land border with the Irish Republic, faces political paralysis after the collapse of a government that shared power between Catholics and Protestants. One of May's principles was "strengthening the union", she said, adding she hoped for a spirit of unity in Northern Ireland.
May also faces difficulty winning support in Scotland, where voters strongly favoured staying in the EU just two years after they rejected independence from Britain.
U.S. President-elect Donald Trump has said that Brexit will turn out to be a great thing and other countries would follow Britain out of the European Union. He promised to strike a swift bilateral trade deal with the United Kingdom.
May mentioned Trump, saying that it was clear Britain was now at "the front of the line" for a trade deal with the United States. Outgoing President Barack Obama had urged Britain to stay in the EU, warning before the referendum that outside the bloc it would be at the "back of the queue" for a trade deal.
(Editing by Michael Holden, Guy Faulconbridge and Peter Graff)