European diplomats based in the UK say the British government is stepping back from its threat to leave the EU without a trade deal if negotiations break down.

In private, say diplomats, UK officials recognise the “havoc” that this would cause, and have come to regret the threat to turn the UK into a deregulated offshore tax haven, implicit in Theresa May’s Lancaster House speech in January, when she warned that “no deal for Britain is better than a bad deal”.

They claim the conciliatory signals from UK government officials are an attempt to lower the temperature asthe prime minister prepares to send the UK’s article 50 letter on Wednesday, triggering the start of two years of intensive Brexit negotiations.

Many EU diplomats told the UK government in the wake of May’s Lancaster House speech that the threat jarred with the tone of the rest of what she said, and had made it harder to build a political consensus for a deal in Europe.

One UK-based ambassador, with deep knowledge of the European Union, said: “They [British ministers] have realised that ‘no deal is better than a bad deal’ won’t fly. They are worried about people in this country who have an ideological and political intention of creating chaos. The civil service have told them it would create havoc.”

The EU diplomats revealed their anxiety that May has been too willing to bend to the prevailing wind with some of her own backbenchers and the Brexit-supporting press, setting up expectations that they believe she will struggle to meet.

One source said the decision of Michel Barnier, the EU chief negotiator, to be as open as possible about the talks is in part an attempt to educate the UK public about the dangers of not reaching a deal, and leaving the bloc on what is known as World Trade Organisation terms.

“It is not possible to overestimate the threat the UK press poses to reaching a deal. We have to counteract that by being open,” said one diplomat.

In briefings given to EU diplomats, British civil servants and ministers have told the EU governments not to expect anything substantially new in the article 50 letter when it is delivered on Wednesday, although there may be some clarification about the extent to which the government is willing to countenance a transitional deal or implementation phase.



The diplomats added that for the first time there have been hints from the UK government suggesting they might accept a continued role for the European court of justice as arbiter in any transition, a point emphasised by Barnier in his speech last week. The issue of the jurisdiction during a transition, although not fundamental to the final deal, is likely to be one of the most difficult to negotiate, as it could mean May having to accept that the UK will still be subject to the jurisdiction of the ECJ at the time of the next general election in 2020.

EU sources said it would not be possible for trade disputes between the UK and the EU over the single market rules to be decided by the UK supreme court.

The source said that in private UK civil servants accepted “that the UK, as part of a transitional arrangement, could stay in the customs union for a limited period of time. But they don’t want to go public on this.” Civil servants have acknowledged that the number of goods that would need to be tracked would rise from 17m to 350m a year.

The diplomats also predicted that the UK was likely to change its rhetoric towards immigration, suggesting that the British realised that strict limits on immigration were a bad idea for British society and the economy, and there was a need to focus more on control and not quantitative limits. “They will talk themselves out of the 100,000 [limit] thing,” one diplomat said.

Diplomats point out the number of migrants likely to be seeking to enter the UK from the EU is set to decline since growth is picking up on the continent and there will be greater competition for labour.

The sources added that they had been told to expect the first round of negotiations to focus on technical issues of how the talks will be conducted. Thereafter, the issues of the Irish border, citizens’ rights and the bill for the divorce settlement are expected to dominate discussions until after the German elections in September.

The diplomats insist that the EU will not be raising a specific sum that needs to be reimbursed by the UK, but instead will talk about the principles underlying any calculation. The money is “peanuts in the big picture”, the source added.

Diplomats insist EU countries will refuse to discuss giving the UK access to their markets post-Brexit until Britain reveals whether it will discriminate against EU goods.