The UK could join a trade alliance with the US, Canada and Mexico if a post-Brexit trade deal with the EU falls through. The Telegraph report comes as PM Theresa May said progress had been made in the Brexit talks.
The Daily Telegraph newspaper reported on Tuesday that British ministers were looking at joining the North American Free Trade Agreement (NAFTA) as part of planning for the possibility of the UK leaving the EU in March 2019 with no trade deal.
It gave no sources for the report.
"As we prepare to leave the EU, we will seek to transition all existing EU trade arrangements to ensure that the UK maintains the greatest amount of certainty, continuity and stability in our trade and investment relationships," a spokesman for the Department for International Trade said.
With Brexit day coming in 2019, British ministers are exploring the options if the world's fifth largest economy drops out of the EU without a clear trade deal.
Joining NAFTA would allow the UK to boost trade with three of the world's economic powerhouses, which have a combined GDP of €19 trillion, compared with the EU's GDP of €17.5 trillion. Britain, the US, Canada and Mexico account for more than 30 percent of the entire global economy.
"We are confident that we will find a deal that works for Britain and Europe too. But it is our responsibility as a government to prepare for every eventuality, and that is what we are doing," the ministry spokesman said.
Britain is currently negotiating the terms of Brexit from the EU though Prime Minister Theresa May is pushing to move onto discussions about a major free trade deal with the world's biggest trading bloc.
US President Donald Trump has warned he may terminate the 1994 NAFTA deal because he says it does not serve US economic interests. Canadian prime minister, Justin Trudeau, meets Trump, on Wednesday and will discuss the NAFTA, overlapping with the start of the fourth round of NAFTA negotiations.
"I happen to think that Nafta will have to be terminated if we're going to make it good,” Trump told Forbes in an interview published on Tuesday.
If Britain did join NAFTA, manufacturers wanting to export to the EU and North America would have to produce goods in accordance with the two separate sets of rules, according to trade analysts.
The EU is Britain's biggest single export market, accounting for about 50 percent of goods exported in August. The US was the single biggest destination for British exports, accounting for 14 percent in August.