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By Jenny Gross and Nicholas Winning 

LONDON--Prime Minister Theresa May on Tuesday said the U.K. intends to leave the European Union's single market, outlining a plan for a definitive break from the bloc and answering the biggest open question about her vision for Britain's future.

I n her most detailed speech yet, Mrs. May said the U.K. wouldn't seek a new relationship that was "half-in, half-out" of the EU. It would no longer abide by the bloc's immigration rules or be subject to jurisdiction of the European Court of Justice, which the EU insists are requirements for unfettered access to its market of 440 million consumers.

At times conciliatory and other times tough, the British leader described an independent U.K. with full control over its borders that nonetheless maintains a close and friendly trading relationship with the EU. "We will continue to be reliable partners, willing allies and close friends," she said.

In comments that appeared to soothe investors, she said she would give lawmakers, a majority of whom backed staying in the EU, a vote on the final deal and wanted a period to make the transition to the new relationship as smooth as possible.

Sterling rose by as much as 2.8% against the U.S. dollar, to $1.228 during the speech, after plummeting to a 31-year low on expectations that Mrs. May would announce the U.K. is leaving the single market.

"What I am proposing cannot mean membership of the single market," Mrs. May said. "Instead we seek the greatest possible access to it through a new, comprehensive, bold and ambitious free-trade agreement."

She said the U.K. wouldn't be seeking full membership to the EU's customs union--by which members apply a common set of tariffs and import quotes to nonmembers--which would prevent Britain from negotiating its own trade deals with non-European countries. She didn't spell out what sort of membership she would seek.

"I want Britain to be able to negotiate its own trade agreements," she said. "But I also want tariff-free trade with Europe and cross-border trade there to be as frictionless as possible."

It is unclear what sort of preferential trade access EU leaders and officials would agree to give the U.K. Eager to discourage anti-EU movements across Europe, they have said there is no appetite for giving the U.K. a better deal than existing membership.

Some economists say leaving the single market will create uncertainties for U.K. businesses that rely on trade with Europe. Nearly half of British goods and services exports go to the EU, compared with 5% to India and China, two markets with which Britain aims to increase trade once it leaves the bloc.

Brexit supporters said they welcomed the tough position Mrs. May set out ahead of negotiations, which she is expected to trigger by the end of March.

Some had long called for Britain to leave the single market and potentially the customs union, but seek to maintain trading advantages through a trade deal with the EU.

"Britain must leave the EU at the earliest opportunity so that we can take full advantage of the huge benefits Brexit will bring, and this must not be impeded or delayed by an unnecessarily long period of transition," said Richard Tice, co-chair of Leave Means Leave.

A spokeswoman for Mrs. May said she hopes to speak to European leaders, including German Chancellor Angela Merkel and French President François Hollande, in the coming days about the speech.

Czech EU affairs minister Tomas Prouza tweeted that the "UK's plan seems a bit ambitious--trade as free as possible, full control on immigration...where is the give for all the take?"

German Foreign Minister Frank-Walter Steinmeier said after the speech that he welcomed Mrs. May's comments on wanting a constructive partnership and friendship with the EU.

"We also want, if possible, good, close and trustworthy relationships and wish for constructive negotiations with this aim," he said. "But our line is and remains: Negotiations only begin once Great Britain has officially communicated its wish to leave."

Mrs. May said she planned for a tough negotiation. She said a punitive deal that punishes Britain to discourage other countries from taking the same path would be "calamitous."

"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," Mrs. May said.

Officials said if there is no free trade deal the U.K. would have to resort to World Trade Organization rules, meaning U.K. exports to the EU would face new tariffs on many items.

Mrs. May said it is in the U.K. or EU's interest for there to be a period to phase in Britain's new relationship with the EU, which would give businesses enough time to plan and prepare for new arrangements.

President-elect Donald Trump said in a weekend interview that the U.S. wanted to come to a quick trade deal with the U.K., comments Mrs. May referenced during the speech.

Following the speech, some Brexit supporters called on Mrs. May to go further and set out a clear time frame for when the U.K. would no longer be subject to EU rules. Nigel Farage, a chief Brexit campaigners and former leader of the anti-EU UK Independence Party, said from his Twitter account: "My worry is how long this is going to take and when we will start doing a deal with the U.S.A. and others." He said Mrs. May's speech echoed what he had been saying for years.

Mrs. May's confirmation that the U.K. would leave the single market marks a U-turn from comments before she became prime minister. In April, she warned that it accounts for a huge volume of Britain's trade and it wasn't realistic that the U.K. could replace European trade with new markets.

On Tuesday, she acknowledged her changed position, saying the economic indicators since the Brexit vote had been more positive than many economists had predicted.

European Council President Donald said on Twitter that the bloc was ready to negotiate the divorce. "Sad process, surrealistic times, but at least more realistic announcement on Brexit."

Valentina Pop in Brussels and Andrea Thomas in Berlin contributed to this article.

Write to Jenny Gross at jenny.gross@wsj.com and Nicholas Winning at nick.winning@wsj.com

(END) Dow Jones Newswires

January 17, 2017 11:42 ET (16:42 GMT)

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