Theresa May: 'We are leaving the European Union but we are not leaving Europe' © PA

Theresa May has set out a new role for a “global Britain” outside the EU’s single market in a landmark speech outlining plans to take the edges off a hard Brexit but vowing to fight back if she failed to get a good deal.

The prime minister said she would seek a “bold and ambitious free-trade agreement” with the EU and hoped to maintain partial membership of the EU customs union, continued tariff-free trade and an “implementation phase” to avoid a Brexit cliff-edge.

“We are leaving the European Union but we are not leaving Europe,” she said.

But the long-anticipated blueprint for Britain’s epochal exit from the EU caused unease in Europe as Mrs May laced it with a threat to walk away if she could not secure a fast-tracked trade deal, instead turning Britain into an economy based on low taxes and loose regulation.

Donald Tusk, European Council president, said it was a sad day but that the British prime minister had made a “more realistic announcement on Brexit”. He said the EU was now ready to start Brexit talks.

The pound rose sharply as Mrs May gave her speech to European diplomats in London, as markets responded favourably to her generally positive tone and the end of the uncertainty that had surrounded London’s European strategy since the shock vote to leave the EU in June.

After anxiety earlier in the week that Mrs May was going to announce a hard Brexit, the pound was on track for its best one-day gain against the dollar since 2008, rallying 2.9 per cent to just below $1.24.

“If the prime minister achieves all she has set out to achieve, she will fall short of hard Brexit that many in business and trade unions have feared,” said Sir Keir Starmer, Brexit spokesman for the opposition Labour party.

The reaction to Mrs May’s speech in political, business and financial circles reflected a sense of relief that she now had a plan, despite the potential pitfalls and economic risks.

The prime minister, who had warned during the EU referendum that leaving the single market would cause economic harm, confirmed that Britain was pulling out of a trading area covering 500m people that her Conservative predecessor Margaret Thatcher helped to build. Britain would instead return to its roots as a globally-oriented trading nation.

Her plan to end Britain’s full customs union membership to allow it to set its own tariffs and strike its own trade deals will inevitably lead to border checks and new bureaucracy for exporters between the UK and EU.

Meanwhile Mrs May confirmed that she would be prepared to walk away from Brexit negotiations, guaranteeing a hard departure. “I am clear that no deal for Britain is better than a bad deal for Britain,” she said.

Acknowledging that Brexit talks could be fraught and that some voices in the EU were “calling for a punitive deal”, Mrs May said: “That would be an act of calamitous self-harm for the countries of Europe and it would not be the act of a friend.”

She added that she had a Plan B, in which Britain would aggressively cut taxes and red tape. “If we were excluded from accessing the single market, we would be free to change the basis of Britain’s economic model.”

Although Downing Street insisted the prime minister was not putting its willingness to share its intelligence and defence capabilities on the negotiating table, Mrs May reminded her audience of the role Britain plays in European security.

Mrs May’s combination of veiled threats and soft diplomacy — she insisted it was “compellingly in Britain’s national interest that the EU should succeed” — appealed to both Eurosceptics and pro-Europeans at Westminster.

Nigel Farage, the former UK Independence party leader who campaigned for Brexit, welcomed the speech as “real progress”, saying: “I can hardly believe that the PM is now using the phrases and words that I’ve been mocked for using for years.”

The prime minister phoned European leaders after her speech to explain her plan. There were calls to Jean Claude Juncker, European Commission president, and Mr Tusk. She also spoke with German chancellor Angela Merkel and French president François Hollande.

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Trade talks present UK with logistical burden / From David Milne, London, UK

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