Theresa May has revealed plans for a two-year implementation period once the UK formally leaves the European Union.

The Prime Minister said neither her government nor the EU would be ready to fully put in place arrangements for Brexit on March 29, 2019 - Britain's slated departure date.

Instead she proposed a two-year period after that in which "the existing structures of EU rules and regulations" would still apply in Britain.

In addition, EU citizens living in the UK would continue to be able to reside and work in the country under a registration scheme.

Speaking in a major speech in Florence, Italy, aimed at breaking the deadlock with EU negotiators, May also vowed to honour British commitments to the EU's budget.

She used the 35-minute speech to call for a "bold new strategic agreement" on security as a sign of continued commitment to Europe, and said the UK would be the continent's "strongest friend".

The Prime Minister said: "As of today, these considerations point to an implementation period of around two years."

But she emphasised that in some areas the change to post-Brexit arrangements could be made more quickly.

May added that there would be a "clear double lock" to the implementation period, giving businesses the certainty to plan for change and a guarantee that the temporary transitional arrangements "will not go on for ever".

She also promised the UK would honour its commitments under EU's the existing budget period, which lasts until 2020, and continue to participate in some programmes.

May said: "I do not want our partners to fear that they will need to pay more or receive less over the remainder of the current budget plan as a result of our decision to leave.

"The UK will honour commitments we have made during the period of our membership.

"And as we move forwards, we will also want to continue working together in ways that promote the long-term economic development of our continent."

She added: "We want to be your strongest friend and partner as the EU and the UK thrive side by side."

Sterling sank to a daily low against both the US dollar and euro as markets reacted to May's speech.