Britain, EU may reach 'provisional' Brexit transition deal next week - source

FILE PHOTO: A demonstrator carries a Union Jack and a European Union flag as the EU's chief Brexit negotiator Michel Barnier visits Downing Street in London, Britain February 5, 2018. REUTERS/Hannah Mckay/File Photo

BRUSSELS (Reuters) - Britain and the European Union could agree a "provisional" deal next week on a post-Brexit transition period, a senior Brussels diplomat said on Friday, stressing that this will only happen if London and the bloc resolve all divorce matters first.

British Prime Minister Theresa May will attend an EU summit next Thursday and Friday, and is hoping for a deal that will reassure business that not much will change for about two years after Britain leaves the bloc as scheduled in March 2019.

But the bloc says a stalemate on agreeing how to avoid returning to a hard border in Ireland after Brexit risks derailing any deal, and negotiations are expected to go on until the last minute.

"There could be an agreement on transition, but it would in any case only be a provisional agreement," a senior EU diplomat said on Friday.

"It would be completely dependant on what will be the fate of the withdrawal agreement. Of course, if there is no withdrawal agreement, there will be no transition."

The bloc says it would give Britain a status-quo adaptation phase only if the two sides clear up all disagreements related to Britain's withdrawal.

Sources have noted signs of quick progress in recent days on outstanding issues, with the border in Ireland again emerging as the key make-or-break issue.

(Reporting by Gabriela Baczynska; Editing by Hugh Lawson)