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Britain is heading for a breakthrough on Brexit talks after reaching a compromise with Ireland on the border between the Republic and Northern Ireland, the issue that threatened to derail the negotiations.

The draft refers to maintaining “regulatory alignment” between Northern Ireland and the Republic after Brexit — a form of words that, according to a senior official involved in the talks, appears to meet Dublin’s deep concerns about a possible hard border on the island and has not raised objections in London.

The wording is more comfortable for Britain than previous draft formulations that insisted on “no regulatory divergence”, a phrase that implied wholesale acceptance of the rules of the EU single market and customs union.

The provisional deal came just minutes before Theresa May, UK prime minister, prepared to enter a crucial lunch with Jean-Claude Juncker, the European Commission president, with Ireland remaining the main obstacle to a deal on Brexit divorce terms. The draft language will need to be signed off by Mrs May at the lunch, where the EU will seek assurances from the prime minister that she can see the deal through.

Agreement on the divorce would represent a momentous turning point for the Brexit talks, ending a nine-month first phase devoted solely to untangling past relations, much to the annoyance of London.

The news also helped lift the pound, which had been trading lower in Monday’s Asian and early European sessions, partly because of Brexit doubts. But the reported breakthrough pushed sterling 0.7 per cent higher, to $1.3524, sending it into positive territory for the day.

Britain and the EU have made progress on the other two big divorce issues — the Brexit bill and citizen rights — as they seek to make sufficient progress in the talks to allow a second phase of negotiations — on a transition and a future EU-UK relationship to go ahead.

Donald Tusk, the president of the European Council, said late last week that the EU would not agree any deal that Ireland did not support, in effect giving a veto over the talks to Leo Varadkar, Irish prime minister, who convened an emergency cabinet meeting on Brexit on Monday morning.

The compromise proposed by EU negotiators refers to the need for continued “alignment” with single market rules that support co-operation between Northern Ireland and the Republic, according to a person familiar with the text.

Mrs May’s position has been complicated by her reliance on the votes from Northern Ireland’s Democratic Unionist party for a parliamentary majority in Westminster.

Downing Street said that Mrs May would not agree to any Brexit deal that put barriers between Northern Ireland and the rest of the UK.

“The UK is leaving the EU as a whole,” Mrs May’s spokesman said. “The territorial and economic integrity of the UK will be protected.”

Mrs May’s team said that Monday’s meetings in Brussels were “an important staging post” on the way to the European Council on December 14-15.

Although Dublin has suggested Northern Ireland could continue to apply EU customs and internal market rules as fallback option to avert border checks in any EU-UK trade agreement, the DUP is implacably opposed to any settlement that would see the region’s economy operating under a different regime to the rest of the UK.

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