Businesses could find themselves launched off of a cliff edge and into a Brexit vacuum if the government does not line up its transition period with care.
The Institute of Directors (IoD) is warning the UK will likely need longer than the two-year Article 50 process to negotiate both an EU exit agreement and a free trade agreement with the EU, leaving businesses in a no man's land of World Trade Organisation rules in the period in between.
"In her speech, the Prime Minister removed one half of the cliff-edge in committing to this 'implementation phase' once a new partnership deal is reached," the report read. "But she still hasn't acknowledged that this might not be done within the timeframe currently provided under Article 50."
Allie Renison, head of EU and trade policy at the IoD and author of the report, told City A.M.: "Our concern is that, as the clock winds down, businesses start thinking, 'If [the new trade arrangement] isn't done, what am I actually adjusting to?'"
In her landmark Brexit speech last month, Prime Minister Theresa May promised to fight for a "phased process of implementation" when she pulled up to the negotiating table. However, the IoD's concern is this would not cover an interim period before any deal was finalised.
The IoD is urging the government to seek to extend Brexit talks for a couple of years if necessary to avoid creating a gap between Brexit date and the start date of a new free trade agreement.
"Trade deals can take a long time to agree and implement so introducing a transition phase from the time Article 50 is triggered to the time the new trade deal is in place will be crucial," a City of London Corporation spokesperson told City A.M.
"It will guarantee firms the certainty and clarity they need to continue serving their customers and the wider economy."
Miles Celic, chief executive of TheCityUK, told City A.M.: "Ensuring a sufficient adaptation period for highly regulated industries such as UK-based financial and related professional services will be key."
The Confederation of British Industry (CBI) has previously warned suitable transition periods must be put in place to avoid a sudden rule change for businesses when the Article 50 period is up.
"Businesses are inevitably considering the cliff edge scenario – a sudden and overnight transformation in trading conditions," CBI president Paul Drechsler said at the group's annual conference last November.
A number of financial sector names have recently suggested a Brexit cliff edge would be just as bad, if not worse, for firms in the EU, including Bank of England governor Mark Carney and junior Brexit minister Lord Bridges of Headley.
Jean-Claude Juncker yesterday warned the UK it faced an eyewatering Brexit bill, with reports suggesting the European Commission president foresaw the country could have to pay as much as €60bn (£50.8bn) to cover its existing commitments to the EU.
However, reports also emerged that German ministers are less keen on such heavy-handed actions, fretting it may lead to the loss of a major trading partner.