Theresa May has suggested the UK will reject a "punitive" Brexit deal from the EU and trade on default World Trade Organisation (WTO) rules with the economic bloc.

The prime minister issued the warning to Brussels after confirming the government would not seek to maintain single-market membership in a central London speech on Tuesday (17 January).

The move is designed to allow Whitehall to introduce EU immigration curbs, which are prohibited under Brussels' free movement rules.

"Britain wants to remain a good friend and neighbour to Europe," May said.

"Yet I know there are some voices calling for a punitive deal that punishes Britain and discourages other countries from taking the same path.

"That would be an act of calamitous self-harm for the countries of Europe. And it would not be the act of a friend.

"Britain would not – indeed we could not – accept such an approach. And while I am confident that this scenario need never arise – while I am sure a positive agreement can be reached – I am equally clear that no deal for Britain is better than a bad deal for Britain."

The Conservative premier also stressed that the UK would not contribute "huge sums" to the EU's budget after a Brexit.

But May failed to rule out small future contributions to the EU, with Britain currently sending around £135m per week to Brussels.

Elsewhere, the PM said she wanted a new customs agreement with the EU, which would allow tariff-free movement of goods and enable Britain to broker its own free-trade agreements.

"That means I do not want Britain to be part of the Common Commercial Policy and I do not want us to be bound by the Common External Tariff," she said.

"These are the elements of the Customs Union that prevent us from striking our own comprehensive trade agreements with other countries. But I do want us to have a customs agreement with the EU.

"Whether that means we must reach a completely new customs agreement, become an associate member of the Customs Union in some way or remain a signatory to some elements of it, I hold no preconceived position. I have an open mind on how we do it. It is not the means that matter, but the ends."

May's 12-point Brexit plan

  1. Government will provide certainty and clarity to politicians and businesses.
  2. UK will 'control our own laws' by quitting the European Court of Justice.
  3. May will strengthen the 'precious union' between England, Wales, Northern Ireland and Scotland.
  4. There will be no hard border between Northern Ireland and the Republic of Ireland.
  5. UK will 'control' EU immigration, while recruiting the 'brightest and the best' from around the world.
  6. Government will seek a reciprocal residency rights deal for EU and UK workers 'as soon as possible'.
  7. May has promised to protect workers' rights.
  8. Ministers will seek a 'bold' and 'comprehensive' free trade agreement with the EU.
  9. UK will seek a customs agreement so that it can broker its own trade deals with non-EU nations.
  10. May will keep European science and innovation ties in bid to keep the UK a 'world leader'.
  11. UK will continue to work with the EU in bid a bid to combat the threat of terrorism.
  12. Ministers will seek to avoid a 'cliff edge' and seek a smooth split from the EU.
Theresa May: Brexit the end of Britain making vast contributions to EU ITN

May's speech to diplomats and politicians at Lancaster House gives the clearest indication yet that the UK is heading towards a so-called "hard Brexit".

But the pound rallied from $1.2165 to $1.2242 on the news that MPs and peers will be given a vote on the final Brexit deal.

"I can confirm today that the Government will put the final deal that is agreed between the UK and the EU to a vote in both Houses of Parliament, before it comes into force," May said.

Liberal Democrat leader Tim Farron said the speech could have been written by a former Ukip leader or backbench Tory MP Peter Bone.

"You can call this Brexit clean, red, white and blue, or whatever you want. But this doesn't disguise the fact that it will be a destructive, Hard Brexit and the consequences will be felt by millions of people through higher prices, greater instability and rising fuel costs," he said.

Green co-leader Caroline Lucas, meanwhile, claimed May's plan to drop full EU single-market access was "reckless".

"May is willing to sacrifice our economy at the altar of ending free movement rather than making sure the benefits are shared more fairly – we believe that is utterly misguided," she said.

The prime minister's address comes just two months before she intends to invoke Article 50 – the mechanism to break from Brussels – and trigger talks with the EU.

But her plans could be frustrated as the Supreme Court is yet to rule on whether MPs should have a vote on invoking Article 50. The historic judgement is expected in January.

Jeremy Corbyn: May wants to turn UK into a 'bargain basement tax haven'

"Theresa May has made clear that she is determined to use Brexit to turn Britain into a bargain basement tax haven on the shores of Europe. She makes out this is a negotiating threat to the 27 EU countries but it's actually a threat to the British people's jobs, services and living standards.

"We welcome that the Prime Minister has listened to the case we've been making about the need for full tariff free access to the single market but are deeply concerned about her reckless approach to achieving it.

"This speech should have been given in Parliament where MPs could ask her questions on behalf of their constituents. She talks about Brexit restoring parliamentary sovereignty but, once again, she is determined to avoid real scrutiny of her plans."