THE UK and EU have agreed the basis of a transition deal, which will mean the UK being bound to Brussels’ rules for almost two years after Brexit.

After a weekend of intensive talks, David Davis and Michel Barnier told a joint press conference in the Belgian capital that they had resolved all the major sticking points to allow the deal to be signed by European leaders at their regular meeting on Thursday.

However, the issue of Northern Ireland remains an outstanding issue, which needs more work.

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The pound jumped by almost one per cent against the dollar to 1.40 US dollars following the news while sterling was trading up 0.7 per cent against the euro at 1.14 euros.

The EU’s chief negotiator said both sides had agreed a “joint legal text which constitutes a decisive step because we were able this morning to agree, and after all those days and nights of hard work, on a large part of what will make up an international agreement for the ordered withdrawal of the United Kingdom”.

He went on: "A decisive step remains a step, we are not at the end of the road and there is a lot of work still to be done on important subjects including Ireland and Northern Ireland."

The Brexit Secretary said the agreement represented a "significant step" on ensuring a time-limited implementation period after Brexit which would deliver the certainty demanded by business.

The draft deal means EU citizens arriving in the UK during the transition period will enjoy "the same rights and guarantees" as those present before Brexit, insisted the EU’s chief negotiator, but he noted how the UK would be able to negotiate – but not enact - trade agreements with outside countries during transition.

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On the Irish border, Mr Barnier pointed out how the two sides had agreed how the issue would be dealt with during the remaining negotiations.

“Both sides remain committed to December's joint report in all of its aspects," he explained, and that EU and UK had agreed the ‘backstop’ [ie full regulatory alignment option] “must form party of the legal text of the withdrawal agreement".

"The backstop will apply unless and until another solution is found," he declared the EU negotiator.

Mr Barnier said that there had been "complete agreement" on future citizens' rights and the financial settlement as well agreement on a transition period after the UK left the EU in March 2019.