On Friday, 22 September 2017, Theresa May delivered her eagerly awaited third speech about Brexit in Florence.

As predicted, the British prime minister has accepted the inevitable – that a transitional period will be required for Britain’s exit from the EU. Brexit, it would seem, no longer means Brexit.

Vaguely, the prime minister suggested an implementation period of “around two years”. Firstly, a two year transitional period is very unlikely to be long enough to agree all that needs to be agreed or to put in place the type of customs infrastructure which the UK would need to put in place. Secondly, the length of any transitional period is unlikely to be fixed in the short term because to do so would alleviate any pressure to progress the divorce settlement as far as possible in the interim. The British government will be particularly keen that any transitional period comes to an end well before the next UK general election in 2022.

The prime minister indicated that Britain would continue to pay into the EU fund for the period but did not offer any figure. It is speculated that this sum would amount to about €20 billion (£18 billion). The EU has expressed a desire to reach a final financial settlement with Britain in the region of €50 billion to €100 billion to cover its long term unpaid liabilities for EU projects and commitments extending beyond its withdrawal from the EU. Clearly there is still a long way to go in negotiating the settlement amount.

Theresa May failed to offer terms for the new EU-UK economic partnership but definitively ruled out a model based on the European Economic Area or a traditional free trade agreement similar to the EU-Canada bilateral trade deal, CETA. Speaking in largely optimistic terms, the prime minister spoke about reaching a “creative” agreement with the EU which would avoid the imposition of tariffs and other barriers to trade. However, the transitional period will effectively be the UK adopting the “Norway model” until all exit arrangements are finalised.

On the issue of rights for EU citizens living in the EU, the prime minister offered to write legal protections into the actual exit treaty. This is a significant gesture as the previous offering would have allowed British MPs to alter EU citizens’ rights. In a further concession, Theresa May acknowledged that the ECJ would have a role in settling rights disputes. She said that she wants the UK courts to be able to take account the ECJ’s judgments with a view to ensuring consistent interpretation. The prime minister acknowledged that both the EU and UK refuse to accept any physical infrastructure at the Irish border but, despite a deferential approach by the EU on this issue, failed to offer a plausible solution.

Business leaders in the UK reacted well to the idea of a transitional period. The EU (for the most part) welcomed the softening of the UK’s rhetoric. Markets, however, did not react particularly well – a “hard” Brexit would probably not have been a good thing but at least there would have been certainty. The markets could then have assessed the situation post-Brexit and made decisions accordingly. What we have now is an extended period before Brexit actually happens which the markets have simply interpreted as a period of further uncertainty.