The International Monetary Fund President said it was a “sensible approach” for both parties to take in the historic European divorce.
She claimed her early indications of Britain’s future outside the bloc came from reading into Theresa May and Michel Barnier’s comments in the media.
Speaking to Bloomberg, Ms Lagarde said: “I don’t have a crystal ball, I wish I had.
“I read everything Prime Minister May says and what Michel Barnier says.
The head of the IMF predicted a transitional Brexit deal to be reached between UK and EU
Both parties will be heading towards a traditional period, which to me is probably a sensible approach
“I understand that probably the parties will be heading towards a traditional period, which to me is probably a sensible approach, given the complexity of the task and the many issues that need to be addressed, tackled and resolved.
“There are multiple issues – whether it’s trade, financial sector, individual situation of migrant workers or the border between Ireland and Ireland.”
Brussels and Westminster have been urged to strike a Brexit transition deal amid fears banks with be unprepared for the UK’s departure.
The Association for Financial Markets in Europe warned the two-year deadline for the UK to negotiate the terms of its exit isn’t long enough for banks, investors and financial regulators.
The financial lobbyists called on politicians to make rapid moves to agree on an extra transitional period to ensure financial markets are not plunged into turmoil.
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The group advised: “It will be vital to give an early indication that a transitional arrangement will be agreed upon as part of the exit negotiations.”
Mrs May, while on a trip to the Middle East, said any potential transitional arrangement could include free movement.
In pictures: Theresa May meets with EU's Tusk Thu, April 6, 2017
The two leaders held talks on Brexit negotiations
AFP/Getty Images 1 of 9
European Council President Donald Tusk gestures to members of the media as he leaves 10 Downing street after talks with British Prime Minister Theresa May in central London
The Prime Minister did not rule of the possibility, instead, admitting there would need to be an “implementation period” to help business adjust.
European Council president Donald Tusk has made clear the remaining 27 member states will protect its “core principles”, including immigration, in any transitional deal, insisting they must be maintained during the period.
His demands would mean if Britain wishes to remain in the bloc’s single market beyond the two-year Article 50 period, Mrs May will have to accept free movement until a new arrangement is agreed, something she vowed to prevent when announcing her Brexit intentions.