The European Union’s chief Brexit negotiator struck a blow to the prime minister’s hopes when he said there was “no place” for financial services in any post-Brexit trade deal.

However in the first set of discussions on the “end state” of the Brexit negotiations, Mrs May and David Davis agreed to demand a bespoke deal from the EU regardless.

Mrs May ruled out staying part of the European Economic Area, the so-called Norway model, saying it would be “democratically unsustainable” as the UK would have to obey EU laws.

And she said she wanted a “significantly more ambitious deal” than the one the EU has with Canada. 

A spokesman dismissed objections to the demands for a bespoke deal, suggested Mr Barnier would end up backing down to some extent.

A statement from her office read: “The PM said it was clear what the Cabinet’s objective is: a deal which secures the best possible trading terms with the EU, enables the UK to set rules that are right for our situation, and facilitates ambitious third country trade deals.

“The Brexit Secretary and PM were clear that the UK is seeking a bespoke deal.”

The Cabinet meeting on Tuesday was the first proper discussion on what kind of trade deal the UK wants with the EU after its departure from the bloc.

The Prime Minister said the starting points for the discussion were the speeches she gave at Lancaster House and in Florence, “which set the framework for the overall relationship that we should seek with the EU”, according to a spokesman.

They added: “This is a new, deep and special partnership, spanning both a new economic relationship and a new relationship on security.”

Asked about Mr Barnier’s comments, the PM’s spokesman added: “As we’ve said throughout, we are confident at negotiating a deep and special economic partnership that will include a good deal for financial services.

“As we’ve always been clear, that will be in the EU’s best interests as well as ours.”