Theresa May has further risked infuriating business leaders by shunning calls for Britain to remain in the customs union.
The Confederation of British Industry has urged the Prime Minister to soften Brexit.
In a speech this week CBI general secretary Carolyn Fairbairn called for Britain to remain a member of the single market and the customs union until a free trade deal with the remaining 27 member states is finalised.
Speaking at the G20 summit in Hamburg, May said that she wanted to ensure that the UK continued to enjoy a good trading relationship with the EU.
However, she said that the country could not be a member of ‘every part of the customs union’ and make its own trade arrangements with other countries outside the EU.
‘What we will be discussing as part of our negotiations for the future arrangements is we do want to ensure that we can trade around the rest of the world,’ she told Sky News.
‘That means we can’t be members of every part of the customs union.
‘But we want to continue to have tariff-free and as frictionless trade across borders as possible because we want to ensure that we have that good trading relationship with the EU.’
There are mounting frustrations among firms at the failure so far of ministers to spell out what arrangements will be put in place if there is no trade deal with the remaining 27 by the expected date of Britain’s withdrawal in March 2019.
In her speech, Ms Fairbairn said it was ‘impossible’ to imagine a deal could be finalised that quickly and called for Britain to remain in the single market and the customs union until there was a trade agreement.
Such a ‘common sense’ approach would, she said, avoid a ‘cliff edge’ break, with exporters suddenly faced with new tariffs and customs checks, and give firms the stability to carry on investing in the UK after Brexit.
‘This would create a bridge to the new trading arrangement that, for businesses, feels like the road they are on,’ she said.
Her proposal is likely to be treated with suspicion by hardline Brexiteers, who fear that prolonged transitional arrangements could be used by Remainers as a way of reversing the Brexit vote by stealth.
She set out her plan after the European Commission’s chief negotiator Michel Barnier rebuffed claims by Davis that a free trade deal could deliver the ‘exact same benefits’ as membership of the single market.
‘I have heard some people in the UK argue that one can leave the single market and keep all of its benefits. That is not possible,’ he said.
‘I have heard some people in the UK argue that one can leave the single market and build a customs union to achieve frictionless trade. That is not possible.’