UK's Hammond wants transitional Brexit deal to minimise business shock

Britain should negotiate a transitional Brexit deal that replicates its membership of EU structures as closely as possible, its finance minister said on Friday, acknowledging the country cannot stay in the single market or customs union.

Philip Hammond welcomed corporate input into the discussion on managing Brexit, a day after the CBI employers group said Britain should stay in the EU's single market as it works out new ties with the bloc after Brexit in 2019.

"I'm glad that the business community is exercising a voice in this discussion. I think that is helpful," he said, adding: "I do not believe it is either legally or politically possible to say in the customs union and in the single market.".

Hammond, speaking on the sidelines of a G20 summit in Hamburg, said his preference was for Britain to negotiate a "transitional structure" that takes it out of the single market and customs union "but in the transition phase replicates as much as possible of the existing arrangements".

The aim would be to minimize the shock to business.

Britain could negotiate new trade agreements with countries outside the EU, but this would involve implementation periods over time. In the near term, London needed to work out a transitional deal with the EU.

"To people who are looking to us to protect jobs, economic growth, living standards, they won't thank us if we deliver them an instant hit with only a longer term, slowly building benefit to compensate for it," Hammond said.

British employers have started to push harder for a Brexit deal that causes as little disruption as possible after voters failed to back Prime Minister Theresa May's tough approach to divorce negotiations with the EU in an election last month.

The result, which cost May her majority in parliament, has reopened the debate about how Britain should leave the EU.

Hammond called for an agreement with the EU that "keeps trade flowing in both directions across the UK-EU border but at the same time allows us as much leeway as we can get to open up new markets for UK goods and services".

In the long term, he said Britain wanted an agreement that is "very business friendly ... giving as full as possible reciprocal access to markets and as frictionless a border for our goods traffic as we possibly can achieve".

Asked if there was any chance of Britain not going through with Brexit, Hammond replied: "No, I think the British people have made up their minds."

The EU was on a long-term path to deeper political integration and the British people were not comfortable with that idea, he said, pointing to Britain's relationship with the United States as a possible model for future ties with the EU.

"We're not in a political union with them," he said of the United States. "Yet we have the closest possible partnership and collaboration and I hope in future we will a similarly easy and comfortable relationship with our European Union neighbours."