British negotiators have capitulated to key European demands for a phased approach to Brexit talks, agreeing to park discussions on free trade until they have thrashed out the cost of the multibillion-euro UK divorce settlement.

Putting a brave face on a concession that may further strengthen the tactical dominance of the EU, the Brexit secretary, David Davis, insisted his initial retreat remained consistent with long-term government strategy.

“It’s not how it starts, it’s how it finishes that matters,” Davis said in Brussels after the first day of formal talks. “Nothing is agreed until everything is agreed.”

Previously Davis had threatened to turn the issue into the “row of the summer” in a bid to avoid being held to ransom over the divorce settlement. He had hoped for talks on trade to run in parallel with divorce discussions.

But a politically weakened UK team appeared eager to show signs of progress on Monday even if it meant accepting priorities set by their counterparts.

The chief EU negotiator, Michel Barnier, made clear that he believed Britain was in no position to dictate the timing of the negotiations.

“The UK has asked to leave the EU, not the other way around, so we each have to assume the consequences of our decisions and the consequences are substantial,” he replied, when asked if the EU was making any concessions of its own. “Please do not underestimate those consequences.

“We need to remain calm,” added the former French diplomat. “We are talking about orderly withdrawal first and that makes sense. It’s not something we are asking for in order to get concessions, it’s just a direct consequence of the UK decision.

“I am not in a frame of mind to make concessions or ask for concessions,” he said. “We are looking to unravel 43 years of patiently built relations.”

The bruising exchange took place as the UK also announced that Theresa May would be making a trip to Brussels on Thursday to unveil the terms of a new British offer to guarantee the rights of EU citizens living in Britain.

The full terms of what Whitehall sources describe as a “generous” offer will be published in a paper next Monday, but some in the EU worry they still will not go far enough.

Hopes for swift progress on the issue of the border between Northern Ireland and the Republic were dashed when the joint negotiators revealed it would no longer be in the first wave of their working groups, but would be subject to a separate, slower dialogue.

“This is a technically difficult issue,” explained Davis. “I am certain it is solvable but it will probably take us until the end of the process when we decide what our customs and free trade priorities are.”

But it was the shelving of British hopes for parallel talks on trade that are likely to have the deepest reverberations. Whitehall officials had feared that future trade deals could be held to ransom while the EU extracted the highest possible divorce settlement from a weakened UK government.

“The UK wants to build a deep and special partnership with the EU,” Davis reportedly told Barnier during their plenary session.

“We continue to believe it is necessary to negotiate the terms of that partnership alongside our withdrawal, as it is specified in the text of article 50,” insisted the Brexit secretary.

But the two later published agreed “terms of reference” that made no mention of trade. Davis put a brave face on their relative lack of progress during a joint press conference where he sought to channel historic moments of national adversity.

“As Winston Churchill once said, the pessimist sees difficulty in every opportunity; the optimist sees opportunity in every difficulty,” said the secretary of state. “There is a long road ahead, no doubt with many twists and turns, but our destination is clear.”

Unfortunately for Davis, Churchill experts believed the quote was wrongly attributed to the former British prime minister.

Play Video 0:25 David Davis blunders with Churchill quotation

In contrast to well-rehearsed EU positions on issues such as the financial settlement and Irish borders, British officials admit they did not bring any prepared negotiating papers to share with their counterparts – insisting instead that their overall ambitions were made clear by the government’s white paper and Lancaster House speech.

One EU official said the first day had been a show for the cameras and the meat of the negotiations would start on 10 July.

“We didn’t expect anything substantial from today and I think that was about right,” he said. “This was about organising the timetable and not having a row on day one.”

The source added that talk of a “very generous offer” on citizens’ rights had not yet come to pass.

The issue of the border in Ireland took up a significant amount of the time on the first day of negotiations. A senior EU source said the Irish government and the British had been told that while there would be no need for “barbed wire and gun posts” on the border in Ireland, there would need to be checks.

“If you leave the single market, there must be checks,” the source said. “It might mean lorries turning off into a layby after going through the border but there will be checks.”

Jean-Claude Juncker’s chief of staff, Martin Selmayr, gave an insight into the EU side’s take on Britain’s preparations by retweeting a Daily Telegraph cartoon in which a hapless Davis is seen struggling with a paper strewn desk.

“Whenever you’re ready, Mr Davis,” Barnier is seen telling the Brexit secretary facing him across a long desk.

It is understood that British officials spent much of the day interrogating the EU side on aspects of Brussels’ opening gambits on the divorce bill and citizens’ rights.

The UK side did not spell out its position on either but EU officials were given a clear understanding of where the British government was likely to fight its corner. It remains an open issue whether EU nationals who moved to the UK after the notification of article 50 in March will be covered by any future agreement.

British government officials also asked questions about the EU27’s position that EU nationals should retain all the rights they currently hold rather than merely be given the same rights as UK citizens.

Brexit divorce bill: what is it and how does it affect talks? Read more

Barnier and Davis scoped out a timetable for the negotiations during a session lasting an hour and a half, before taking an early “working lunch” at which they were served Belgian asparagus, red mullet and meringue cake.

In a pre-arranged exchange of gifts, Davis gave Barnier a first edition of a mountaineering classic, Memories of Annapurna, about a successful French expedition to the Himalayan massif, during which the 8,000 metre peak was scaled for the first time.

Barnier presented Davis with a traditional hand-carved wooden walking stick from the Savoy Alps, his home region, where he served as an MP and senator.

Barnier chose the stick while on a trip home over the weekend. “Return this weekend to the Savoy country to draw the strength and energy that long hikes require,” he tweeted on Sunday.

The Frenchman has previously made oblique references to the rules of mountain walking in his Brexit press conferences.

“You have to learn to put one foot in front of the other because sometimes you are on a steep and rocky path,” he said in May. “You also have to look at what accidents might befall you – falling rocks. You have to be careful to keep your breath, you have to have stamina because it could be a lengthy path.”