A PROPOSED economic partnership with the EU "is still possible", the head of the European Council has said.

Donald Tusk had appeared to rip up the Prime Minister's Chequers plan on Thursday saying the proposed new economic partnership with the EU "will not work".

But on Friday he put another spin on things saying the Chequers plan was "a step in the right direction" and added: "I remain convinced that a compromise, good for all, is still possible. I say these words as a close friend of the UK and a true admirer of PM May."

The announcement was greeted by Scottish Conservatives leader Ruth Davidson who said: "Tusk statement. Willingness to seek deal. Good."

Hours earlier in a strongly-worded statement at Downing Street, Mrs May said her plan had been rejected by Mr Tusk without him properly explaining why it was unacceptable or offering an alternative.

She said the EU must treat the UK with more "respect" in Brexit negotiations.

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She said talks had reached an "impasse" and could only be unblocked with "serious engagement" from the EU side.

The pound's fall against the dollar and the euro deepened following Mrs May's Friday statement.

Mrs May said her Chequers proposals were the "only serious credible" way to avoid a hard border in Northern Ireland.

But Mr Tusk in a fresh statement on Friday evening said: "The European Union and its leaders fully respect the UK’s decision expressed in the referendum on leaving the EU.

"From the very beginning of the negotiations we have been focused on finding a deal that will minimise the damage resulting from Brexit.

"Also important to us is to create the best possible relations between the EU and the UK in the future.

"We studied the Chequers proposals in all seriousness.

"The results of our analysis have been known to the British side in every detail for many weeks.

"After intensive consultations with member states, we decided that for the good of the negotiations, and out of respect for the efforts of PM May, we will treat the Chequers plan as a step in the right direction.

"In Salzburg, right before our meeting I said in a public statement: 'I would like to stress that some of Prime Minister May's proposals from Chequers indicate a positive evolution in the UK's approach as well as a will to minimise the negative effects of Brexit.

" 'By this I mean, among other things, the readiness to cooperate closely in the area of security and foreign policy. On other issues, such as the Irish question, or the rules of economic cooperation, the UK's proposals will need to be reworked and further negotiated.' "

Mr Tusk's bombshell Thursday statement came while speaking at the end of an EU summit in Salzburg where leaders of the 27 remaining member states dscussed Brexit.

But in his new statement, Mr Tusk said the UK stance presented just before and during the Salzburg meeting was "surprisingly tough and in fact uncompromising".

He said the response of the EU27 leaders was to "reiterate" our trust in chief negotiator Michel Barnier and to "reiterate our position on the integrity of the single market and the Irish backstop".

Mrs May had reiterated that she would not accept the EU's "backstop" plan to avoid a hard border in Northern Ireland, and said the UK would shortly be bringing forward its own proposals.

The UK is due to leave the EU on 29 March 2019, and both sides are trying to reach a deal in time.

There is still no agreement on some issues, including how to avoid new checks on the Northern Ireland-Republic of Ireland border.