EU 'crystal clear' that single market access means accepting freedom of movement
The remaining 27 EU states have given a stinging rebuff to David Cameron over immigration, delivering a "crystal clear" message that if the UK wants access to the single market after Brexit, it will have to accept free movement of EU citizens.
The Prime Minister warned fellow leaders over dinner on Tuesday that immigration was a key factor behind last week's Brexit vote and that refusal to budge on the issue could scupper hopes of a deal on close trading relations with his successor.
Mr Cameron told the House of Commons the UK was facing "choppy waters ahead" economically as a result of the referendum and it would be in the national interest for his replacement as PM to negotiate "the closest possible relationship" on trade with its former EU partners.
But after chairing an informal session of the 27 national leaders, meeting without the UK for the first time, European Council president Donald Tusk made clear they were determined not to give ground on free movement.
"Leaders made it crystal clear that access to the single market requires acceptance of all four freedoms - including freedom of movement," said Mr Tusk. "There will be no single market a la carte."
His comments were backed by European Commission president Jean-Claude Juncker, who said that anyone wanting free access to the internal market had to accept the principles of free movement of goods, services, people and capital "without exception and without nuances".
London's FTSE 100 index rose 2.2%, clawing back most of the losses inflicted in the immediate wake of the Brexit vote. And Sterling crept up a further cent against the US dollar, after plummeting to a 31-year low earlier in the week.
But an ominous sign for the economy came from telecoms giant Vodafone, which announced it could move its HQ out of Britain because of Brexit.
The group - one of the UK's largest companies - said its decision would depend on whether the outcome of negotiations to quit the EU restricts free "movement of people, capital and goods".
Meanwhile, banks Goldman Sachs and Morgan Stanley were forced to quash rumours that they are drawing up plans to move their London banking operations to Frankfurt.
Mr Cameron told the House of Commons that the warnings of market instability and economic slowdown made by the Remain camp during the referendum campaign were now coming to pass.
While Britain was in a strong position to deal with economic difficulties, it would be wrong to "belittle" the scale of the challenges ahead, he said.
"There are going to be some very choppy waters ahead," he said. "I don't resile from any of the warnings I made during the referendum campaign, but we have got to work through this.
"The warnings were that if we voted to leave the EU, there would be difficulties in terms of our own economy and growth rates and instability in the markets ... We are now seeing those things. There is no doubt in my mind these are going to be difficult economic times."
Mr Cameron said he told the European Council that a key factor behind the Leave vote was "great concern about the movement of people and the challenges of controlling immigration".
And - in a pointed message apparently directed at Tory advocates of Brexit like Boris Johnson and Michael Gove - he added: "Many European partners were clear that it is impossible to have all the benefits of membership without some of the costs of membership. That's something the new prime minister and cabinet will have to think about very carefully."
Pro-Remain Foreign Secretary Philip Hammond said he did not "rule out" a deal on freedom of movement but said that those who claimed it would be easy to secure were "simply betraying a lack of understanding of the political realities in the European Union".
He told BBC Radio 4's The World At One programme: "This is not just a trading chip as far as many Europeans are concerned. It is about a very fundamental principle which they hold dear."
The Prime Minister delivered a scathing condemnation of Jeremy Corbyn's half-hearted campaigning in the referendum as he told the Labour leader he should "reflect on" his own part in the failure to persuade voters to remain in the EU.
Mr Corbyn told the PM that Thursday's vote was a rejection of "a status quo that has failed", and urged him in response to scrap the so-called Bedroom Tax, ban zero-hours contracts and cancel Universal Credit cuts before his departure from 10 Downing Street in September.
But Mr Cameron retorted: "To try to pretend that last Thursday was a result of the state of the British economy is complete nonsense. We all have to reflect on our role in the referendum campaign.
"I know the Right Honourable Gentleman says he put his back into it. All I can say is I wouldn't like to see him when he isn't trying."
Mr Cameron told MPs in a statement that the mood among EU leaders gathering in Brussels on Tuesday for their first summit since the UK referendum was "one of sadness and regret".
But he said there was also acceptance that "the decision of the British people should be respected". And he said he had agreed with fellow leaders that "we are not turning our backs on Europe and they are not turning their backs on us".
There was "no great clamour" among EU leaders for the UK immediately to kick off the two-year process of negotiations on its future relations with the bloc, he insisted. Instead, he said, there was an acknowledgement that "we need to take some time to get this right".
Mr Tusk said the EU wanted to be "a close partner" of the UK following withdrawal. But he again ruled out negotiations prior to London's formal notification of intention to leave through Article 50 of the Lisbon Treaty, as proposed by some potential candidates to succeed the PM.
"There will be no negotiations of any kind until the UK formally notifies its intention to withdraw," he said.
The 27 states are to meet again to discuss their approach to Brexit in Slovak capital Bratislava on September 16, but Mr Cameron's successor as PM is not expected to be invited.