Britain could remain in the EU until late 2019, almost a year later than predicted, ministers have privately warned senior figures in the City of London.
Theresa May has been expected to enact article 50 in January, setting in train the formal two years of negotiations before Brexit.
Despite great political pressure to stick to that timetable, she may be forced to delay because her new Brexit and international trade departments will not be ready, City sources said.
French and German elections are also being cited as a cause for delay. Britain might not invoke article 50 until France has voted next May or even until after the German poll in September, ministers confided to senior City contacts.
“You can’t negotiate when you don’t know who you’re negotiating with,” said a City insider. And a cabinet minister confirmed to The Sunday Times that there were “some challenges” in the French and German electoral timetables.
The prospect of a year’s delay will anger hardline Eurosceptic Conservative MPs and “leave” voters who expected a speedy Brexit.
Nigel Farage, the former leader of Ukip, warned that failure to deliver on the EU referendum result and curb immigration could lead to mass demonstrations on the streets.
There was a “real danger” that millions of people who voted for the first time in the EU referendum would be tempted to join extremists such as the English Defence League if they felt ignored, Farage said.
David Davis, the Brexit secretary, and Liam Fox, the international trade secretary, indicated after May appointed them that they expected Britain to leave at the start of 2019.
However, their new Whitehall departments are being set up from scratch and the situation is “chaotic”, said one senior City source who has spoken to ministers.
“Ministers are now thinking the [article 50] trigger could be delayed to autumn 2017,” said another source, who had discussions with two senior ministers. “They don’t have the infrastructure for the people they need to hire. They say they don’t even know the right questions to ask when they finally begin bargaining with Europe.”
A cabinet source said Davis and Fox might not be able to make much progress before France, in particular, goes to the polls. “Liam and David have talked through these issues and are very aware of the sensitivities,” the source added.
“So it could be that little progress is made to start with and then you start to see [it at] a pace after that.”
Another senior government insider said there was uncertainty about preparatory talks with EU leaders, in which Britain would try to reach understandings on key issues before triggering article 50.
“I’m not sure they are going to be ready,” the source said. “There is an issue about these preliminary talks. No one even seems to know what the substance will be.”
Davis and Fox are spending the summer recess setting up their new fiefdoms. Davis has so far recruited less than half the 250 staff he expects to need. Fox is looking to recruit up to 1,000 trade policy experts but *currently has fewer than 100. His team is temporarily housed in the business department.
Fox has written to Boris Johnson, the foreign secretary, claiming trade with other countries will not “flourish” if responsibility for future policy remains with Johnson’s department. He is also seeking legal advice on his department’s precise room for manoeuvre. It can hold discussions with potential trade partners outside the EU but is barred from formal negotiations with them before Brexit.
A No 10 spokesman said: “The prime minister has been clear that a top priority for this government is to deliver the decision of the British people to leave the EU and to make a success of Brexit. The PM has set out the government’s position on article 50 and has established a new department dedicated to taking forward the negotiations.”