The UK should stay in the single market and customs union until a final Brexit deal is in force, according to the CBI business lobby group.
CBI head Carolyn Fairbairn said it was “impossible” for all the details of a new trade deal with the European Union to be in place by March 2019.
That is when talks about the UK’s withdrawal are due to formally finish.
To minimise disruption, UK businesses need a “bridge” instead of a “cliff edge” for the new deal, she said.
Businesses are delaying investment because of the uncertainty, according to the CBI, whose members employ nearly 7 million people.
The CBI’s comments come ahead of a government conference on Friday with business figures from sectors across the UK.
The event, to be hosted at Chevening House in Kent, is part of government plans to work more closely with industries over Brexit.
“While we will be leaving the single market and the EU customs union, we want to achieve a comprehensive free trade agreement that allows for the most frictionless possible trade,” a government spokesman said.
In her speech at the London School of Economics, Ms Fairbairn said it was “common sense” to stay in the single market and customs union until a trade deal was in place.
“This is not about whether we are leaving the EU, it is about how,” she said.
“Once the Article 50 clock strikes midnight on 29 March 2019 the UK will leave the EU.”
Speaking on Radio 4’s Today programme, the founder of the Wetherspoons pub chain and campaigner for Brexit, Tim Martin, said constant talk about the UK “falling off a cliff and standing on the top of buildings” was the re-emergence of Project Fear again.
“The desire expressed by the doom-laden comments of the head of the CBI, Carolyn Fairbairn is to stay in the customs union and the single market and of course that is the equivalent of staying in the EU for now and perhaps forever.
“I don’t know what the motivation is but it certainly doesn’t speak for a business as a whole, 93% of which doesn’t even trade with the EU,” he added.
He suggested after the meeting at Chevening, the Brexit Secretary David Davis should “have a cup of tea, listen to everything that has been said and give me a bell and I’ll put him straight”.
Those who successfully voted to leave the EU, fear that prolonged transitional arrangements could be used by Remainers as a way of reversing the Brexit vote by stealth.
‘Wasteful, difficult and uncertain’
But the CBI said businesses feared they could be forced to adapt twice – first to a transitional arrangement, and then to the final trade deal.
That would be “wasteful, difficult and uncertain in itself,” Ms Fairbairn said.
She told the BBC that a survey of CBI members found that 40% had reduced investment plans due to Brexit uncertainty.
“The urgency is simply growing. March 2019 is tomorrow for a lot of businesses. They are having to make their plans now,” she said.
Her comments were backed by Labour, which said it wanted an early commitment to “strong transitional arrangements” on similar terms to those currently in place.
The CBI’s proposal was backed by a range of business bodies, including from retail, aerospace and manufacturing.
Terry Scuoler, chief executive of the manufacturers’ body EEF, said: “The absence of any clarity for businesses makes this a sensible approach to transition.”
The TUC also supported the move, saying “it’s crucial that we get the transition right as we leave the EU”.
However, Patrick Minford, chairman of the Economists for Free Trade and an economics professor at Cardiff University, said it was not clear what the CBI wanted.
“They are constantly arguing for remain through the back door and this sounds like the same thing,” he told the BBC.
He said the UK and EU would have to reach some kind of deal by the end of March 2019 and that would involve transitional arrangements.
Business groups have increased their calls in recent weeks for the UK to maintain existing trading relations with the EU.
After last month’s election, five business bodies – including the CBI and EEF – called for the government to maintain the economic benefits of the single market and the customs union.
The CBI has now gone further by urging that the UK stay in those trading arrangements until a final deal is in place.