Prime Minister Theresa May acknowledged calls from British business leaders to avoid a “cliff edge” in which the U.K. leaves the European Union before sealing a fresh trade deal, signaling she may be open to seeking a transitional agreement to bridge any gap.

"We want to get the arrangement that is going to work best for the U.K. and that will work best for business in the U.K.," May told the Confederation of British Industry’s annual conference in London on Monday. "I understand that people don’t want a cliff edge."

The CBI urged the government to clarify what happens on the day after Brexit amid concern companies could be hit by uncertainty, new regulations and tariffs if a new relationship hasn’t been arranged with the EU by then.

“Businesses are inevitably considering the cliff-edge scenario -- a sudden and overnight transformation in trading conditions,” Paul Drechsler, the president of the group, said before May spoke. “If this happens, firms could find themselves stranded in a regulatory no man’s land.”

May has said she wants to invoke Article 50 of the EU’s Lisbon Treaty by the end of March 2017, setting in motion two years of formal talks on the U.K.’s departure from the bloc. In that time, the government will have to draw up new rules for a range of economic activities currently governed by EU regulations as well as strike new trade deals. If no agreements are reached, trade between the U.K. and the EU would be governed by World Trade Organization rules.

The CBI conference precedes Chancellor of the Exchequer Philip Hammond’s Autumn Statement on the economy on Wednesday, when he will outline the government’s priorities for tax and spending.

Many business leaders favored staying in the EU. Since the June 23 vote went the other way, the CBI has led calls for the U.K. to maintain tariff-free ties to the bloc, while ensuring that British companies can continue to tap workers from the EU. May has pledged to curb immigration, a principal demand of the “Leave” campaign, but one that EU leaders have said is incompatible with continued single-market access.

David Fuller's view

Prime Minster Theresa May is not talking about a quick, hard-Brexit, although I maintain it would probably enable her to then negotiate the best free-trade post-Brexit deal for both Britain and the EU. 

However, May clearly wants to keep the UK’s corporate sector on side, including important overseas investors from US banks to Japan’s automobile companies, in addition to Remainers from the Referendum, preferably without shocks.  She is also hoping to avoid a legal struggle over Article 50.  Her strategy may seem less risky but it could also be more of a feared ‘leap in the dark’ than a hard-Brexit, given political upheavals underway in the EU.

That is my conjecture since the forthcoming European election results are currently unknown, not least in terms of the winning candidates’ views towards Brexit once they are in office.  What is not in doubt is the additional cost of remaining in the EU any longer than is absolutely necessary.  Moreover, a long drawn-out Brexit will create longer-lasting uncertainty for corporations, while also being politically divisive within the UK. Let’s get out of the stalled and increasingly unpopular EU, and then build new, mutually beneficial trading relationships with not only EU countries but the rest of the world as well.