The pound surged on confirmation that Britain would remain effectively a non-voting European Union member for 21 months until the end of 2020.
The Brexit transition deal agreed with the European Union needs to be endorsed by regulators so businesses are able to use the agreement to put on hold plans to move jobs and operations out of Britain, the City of London policy chief said.
The EU insists that any divorce deal must ensure there is no "hard border" between EU member Ireland and Northern Ireland, saying it could compromise the 1998 peace accord that ended decades of sectarian violence in the British province.
"We were able this morning to agree, after all those days and nights of hard work, on a large part of what will be an global agreement for the orderly withdrawal of the United Kingdom", Barnier told a press conference with Davis.
"The agreement between the EU and UK on a transitional period up until December 2020 is welcome news particularly in relation to continued frictionless trade across UK-EU borders for the transition".
The 21-month period is "near enough to two years we asked for", UK Brexit secretary David Davis said.
"This announcement shows that we can work with our European Union counterparts for the mutual benefit of businesses and residents on both sides of the English Channel and we welcome the progress that is being made".
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He said they had agreed that the EU's "back stop position" which would see Northern Ireland effectively remain part of the single market if there was no wider agreement, would form part of the legal text of the withdrawal agreement.
Davis agreed with Barnier that Monday's agreement was "decisive" and increased the odds on finding an orderly deal to avoid Europe's second biggest economy simply crashing out of the bloc in just over a year.
"Despite once claiming they held all the cards in the negotiations, in the end the Brexiters have been prepared to compromise and surrender on nearly every single point", he said. "And this option will allow citizens who so wish, to have immediate legal certainty on their right of residence after the transition period", said Barnier.
"The United Kingdom will be able to step out, sign and ratify new trade deals with old friends and new allies around the globe for the first time in more than 40 years", Davis said. However, Britain also notched some gains it had pushed for.
Davis however denied that Britain had backed down, saying it was still pushing for a solution as part of a trade deal which would mean there was no need for the backstop.
But many European Union diplomats said they felt London had largely agreed to their terms on most issues because of May's political imperative to get a transition deal that may calm the fears of businesses contemplating moving investments out of Britain.