UK urgently needs Brexit transition deal, and more time after that, lawmakers say

A transition agreement - which is widely expected to last for two years - must be done with Brussels "in a matter of weeks" to stop companies from moving more operations away from Britain, the cross-party Treasury Committee said.

"It is highly likely that, for certain sectors, including financial services, the 'standstill' transition period will have to be followed by an adaptation period," the committee said on Thursday in a report, summing up its work so far on Brexit.

Many companies are drawing up contingency plans ahead of Britain leaving the EU in March 2019, given the lack of clarity about their future access to the bloc which accounts for nearly half of Britain's exports.

Banks have previously said they want a deal to bridge the period between the end of a Brexit transition phase and the start of Britain's new, permanent relationship with the EU in order to phase in changes to the way they operate.

"At this stage, the committee makes no recommendations about the design or duration of this subsequent period, except that, unlike the 'standstill' period, it need not involve the UK applying the existing framework of EU rules across all sectors," the committee said.

Prime Minister Theresa May last week secured a deal with Brussels that will pave the way for talks on a transition deal and for negotiations about the future permanent UK-EU trade relationship after Brexit.

Nicky Morgan, a lawmaker from May's Conservative Party who chairs the Treasury Committee, said time was of the essence and London should accept EU terms for a transition deal, including temporarily remaining subject to the European Court of Justice.

"Delays to agreements caused by arguments over arcane points of principle could damage the economy," Morgan said. "The government should be prepared to accept the terms on which transition is offered by the EU-27."

Some Brexit supporters have said Britain must no longer be bound by ECJ rulings after Brexit. But under last week's initial divorce deal, Britain will enable its judges to ask the court to weigh in on issues affecting EU citizens for eight years.

The committee also warned the government against assuming that last-minute deals would be reached to avoid disruption in areas such as aviation.

"The history of international trade diplomacy is replete with examples of short-sighted political considerations prevailing over economic self-interest," it said.

"And the conclusion of such agreements may come too late for firms that are intending to activate their contingency plans in the first quarter of 2018."