By Andy Bruce and William Schomberg
LONDON (Reuters) - British finance minister Philip Hammond on Monday backed the idea of a transition period to smooth the process of leaving the European Union, and said EU countries also stood to gain from a gradual Brexit.
In a hint of the differences that have emerged within Britain's government over its strategy for leaving the bloc, Hammond said businesses, regulators and "thoughtful politicians" were increasingly supportive of a transition period.
Britain is due to launch a two-year process of Brexit negotiations by the end of March and the European Commission has said it wants an even shorter period for the talks, saying they should be completed by October 2018.
That tight deadline has raised concerns among businesses, including many British-based financial services firms, about what will happen if the new relationship is not agreed by then.
Prime Minister Theresa May said last month she understood business concerns that Britain could fall off a "cliff-edge" after the negotiations and she promised to address those fears in Brexit talks.
Speaking on Monday, Hammond - considered to be one of the most prominent advocates of a so-called "soft" Brexit - said a transition could be used to phase in the terms of a deal successfully negotiated during the two-year divorce period, or to bridge the lack of a final settlement.
Sterling added to its gains earlier on Monday as Hammond spoke.
He also countered suggestions that a transition deal was only something that would benefit Britain.
"I don't think we should approach this on the basis that we need transitional arrangements, because I think we can only get to a situation where we have a transition if there is a genuine meeting of minds on both sides of this negotiation that they are beneficial," Hammond told lawmakers on Monday.
"Collectively, I think transitional arrangements would be beneficial to us."
Hammond, who has previously suggested that a transition period is necessary, said he expected discussions about it early in the negotiations between Britain and the EU's other 27 member countries.
He reiterated his view that Britain's future controls on the flow of workers from EU countries should not cut off the supply of skilled staff needed by British firms.
"I can't conceive of any circumstance in which we would use that system to choke off the supply of highly skilled, highly paid workers," he said.
(Additional reporting by Camilla Hodgson; Editing by Elizabeth Piper and Andrew Roche)