By Jenny Gross and Nicholas Winning

LONDON--Prime Minister Theresa May on Tuesday said the U.K. intends to leave the European Union's single market, delivering more clarity on her approach to Britain's future economic relationship with the bloc.

In a closely watched speech, Mrs. May said she wouldn't seek membership in the single market and aims to pursue a bold and ambitious free trade agreement.

Leaving the single market will create uncertainties for U.K. businesses that rely on trade with Europe, but it would enable Britain to reject the bloc's principle of free movement, which allows any EU citizen to live and work in the U.K.

"We will have control ofthe number of people coming to Britain from the EU," she told diplomats and officials.

Mrs. May intends to formally start Britain's negotiations for Britian's exit from the bloc in March, which puts the U.K. on course to exit the EU by March 2019. In her speech, she said the government would put the final Brexit deal to a vote in both houses of Parliament.

The U.K. doesn't want to be "half-in, half-out" of the EU, she said.

Investors have been bracing for Mrs. May's speech after months of see-sawing in markets on even slight clues that Britain is heading toward a looser relationship with the EU and could give up access to the bloc's common market.

Sterling is down nearly 20% against the dollar, and many investors worry the currency hasn't yet fully priced in the political risks facing the economy. On Tuesday, the pound rose 0.9% against the dollar to $1.2161, after settling at its lowest since 1985 following weekend media reports the U.K. wouldn't retain single-market access.

Mrs. May has broadly outlined her priorities. She has repeatedly said she wants control over immigration and in her speech reiterated that she wants to remove the U.K. from the jurisdiction of the European Court of Justice, while maintaining good trading terms with Europe. But she has come under growing pressure to spell out details.

EU leaders have said the U.K. can't impose restrictions on EU citizens' ability to live and work in the U.K. and retain its existing economic relationship, which includes unfettered access to the EU's single market of 440 million consumers.

Some business leaders and others have said membership in the single market is vital for British businesses. But politicians who campaigned for Brexit say the U.K. will be better off outside because it can negotiate its own trade deals with other countries.

They say the U.K. will thrive if it is no longer bound to EU regulations and required to abide by the bloc's free movement of people principle.

The slide in the pound in the months since Britons voted to leave the bloc has fueled rising prices. Annual inflation rose to 1.6% in December from 1.2% a month earlier, the U.K.'s Office for National Statistics said Tuesday, the fastest increase since July 2014.

In a boost for Brexit supporters, President-elect Donald Trump said in a weekend interview with the Times of London that the U.S. would work hard to come to a quick trade deal. Downing Street welcomed those comments on Monday, saying a U.K.-U.S. trade deal is one of the opportunities of Britain's exit from the EU.

Jason Douglas in London contributed to this article.

Write to Jenny Gross at jenny.gross@wsj.com and Nicholas Winning at nick.winning@wsj.com

(END) Dow Jones Newswires

January 17, 2017 07:34 ET (12:34 GMT)

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