May preparing to keep Britain in post-Brexit customs union

Citing leaked details of internal discussions, the report stated that May is likely to sign up to a long-term customs union with the bloc in exchange for Labour support for a deal, with the Prime Minister telling MPs that both sides agree on "some benefits of a customs union".

The pound sterling initially appeared to rally at the news, before dropping back down to £0.77 against the US dollar.

A report from the Financial Times on Wednesday suggested that a possible compromise deal would restrict the country’s ability to do trade deals for goods, though it would remove the need for customs checks on goods passing from Britain to the continent and would still allow the UK to independently forge agreements on services.

The news comes after the Conservative Party's chief whip Julian Smith told May that a second referendum was the likely outcome if no deal was struck with Jeremy Corbyn's party for a customs union.

However, the cabinet is understood to be bitterly divided over the issue due to scepticism that any deal that includes a customs union will be able to garner significant backing from Tory MPs.

Jeremy Hunt, foreign secretary, said this week that he thought a customs union was "a bad policy", while international trade secretary Liam Fox has previously stated that denying Britain a fully independent trade policy would be a "betrayal".

Furthermore, former Labour cabinet minister Ben Bradshaw has insisted that even a deal containing a customs union would be "opposed by most Labour MPs" and argued that Labour's backing of a cross-party deal would "lead to resignations of shadow frontbenchers and to a further loss of Labour members and votes to the smaller parties that back a public vote".

The SNP, Liberal Democrats and Change UK (The Independent Group) are also unlikely to support the deal as they still largely favour a second referendum.