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LONDON (Reuters) - British finance minister Philip Hammond said on Tuesday the world's fifth-biggest economy faced tough times as it tries to avoid a damaging "cliff-edge" departure from the European Union.
A day after the start of Brexit talks, Hammond sought to soften the more confrontational tone towards the bloc taken by Prime Minister Theresa May - a role he has re-adopted since her election flop earlier this month.
"Our departure from the EU is under way. But ensuring that it happens via a smooth pathway to a deep and special future partnership with our EU neighbors, one that protects jobs, prosperity, and living standards in Britain will require every ounce of skill and diplomacy," he said in a speech.
"...Yesterday was a positive start. It will get tougher. But we are ready for the challenge."
Almost a year to the day since British voters decided to leave the EU, the Brexit strategy debate within the government has been opened up again by May's unexpected failure to win a parliamentary majority in the June 8 ballot.
She had raised concerns among many businesses in Britain by saying that no deal with the EU was better than a bad deal, raising the prospect of an abrupt Brexit.
Hammond had looked set to lose his job until May's election flop.
He has now re-emerged as big business' leading proponent in the government, a role he reinforced on Tuesday by emphasizing the need for "mutually beneficial transitional arrangements to avoid unnecessary disruption and dangerous cliff edges."
In his speech, Hammond also reiterated he planned to stick to the government's target of turning Britain's budget deficit into a surplus by the mid-2020s, despite pressure from the resurgent opposition Labour Party for more public spending.
In his annual Mansion House speech, Hammond said Britain would almost certainly need an implementation period as it left the EU's single market and its customs union "with current customs border arrangements remaining in place, until new long-term arrangements are up and running."
Bank of England Governor Mark Carney, speaking after Hammond, said companies might soon start to activate contingency plans if a transitional deal did not appear likely.
Hammond said he wanted Britain to lead a "crusade" for the opening up of services markets around the world as it leaves the EU, reflecting the importance of a sector that accounts for around 80 percent of Britain's economic output.
Speaking to an audience packed with banking executives, he took a swipe at recent moves by the EU to try to shift some of Britain's financial services to the bloc.
"We are already hearing protectionist agendas being advanced, disguised as arguments about regulatory competence, financial stability, and supervisory oversight," he said. "We can have no truck with that approach."
The EU's executive said last week it planned to give itself powers to move euro clearing business away from London's financial sector to the EU after Brexit.
However, Hammond made a point of acknowledging the concerns of other EU countries about their oversight of financial markets which are vital to their economies but will be outside the bloc.
Hammond also reiterated his calls for Britain to remain open to skilled workers, reflecting a key concern among businesses which are worried that they might face big hurdles to hiring EU workers after Brexit.
Additional reporting by Huw Jones; Writing by William Schomberg; editing by John Stonestreet