British Prime Minister Theresa May on Tuesday is expected to say she favours a clean break from the European Union, dismissing a "half-in, half-out" Brexit deal with Brussels.

In a highly-anticipated speech, May is likely to give further signals that Britain is heading to what analysts call a "hard" Brexit.

"Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out," the prime minister is due to say on Tuesday, according to an extract of her speech circulated in advance to the media by Downing Street.

"We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave," she will add.

Her direction will be cheered by those who want to leave the EU, but dismay those who fear the impact on Britain's economy.

The speech will take place late morning at Lancaster House, a central London mansion that is a showcase for diplomatic functions and major announcements.

It will be dissected for every detail about May's Brexit strategy, after months of uncertainty.

May has repeated a "Brexit means Brexit" mantra while claiming that outlining the government's aims in detail would give Brussels the upper hand in negotiations.

But recent indicators suggest Britain is heading towards a full break from the EU which entails leaving the single market in order to have full control over immigration.

Downing Street has repeatedly said it wants to secure the best deal for the British economy while allowing for cuts to immigration.

But the EU has been clear that single market access is dependent on allowing the free movement of people.

The speech dominated Tuesday's front-pages of the country's polarised newspapers.

Pro-Brexit Daily Mail celebrated "Theresa's new free Britain" and tabloid The Sun led with the headline "Great Brexpectations", however the pro-EU Guardian warned that opponents "will despair at the lack of compromise on migration and sovereignty."

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The prospect of a "hard" Brexit hit sterling when details of the speech were leaked on Sunday, with the British currency plunging to $1.1986 -- its lowest level since October's "flash crash" that had sent it to a 31-year low of $1.1841 -- in Monday trading.

However, it has since clawed back most of its losses and in early Tuesday trading stood at $1.2127.

Britain's Finance minister Philip Hammond adopted a tough line on Sunday, warning that Britain might undercut the EU economically in order to remain competitive if it faces EU tariffs.

Hammond said he wanted Britain to remain a "recognisably European-style economy with European-style taxation systems, European-style regulation systems."

However, London would have to change course "if we are forced", in order to "regain competitiveness", he told Germany's Welt am Sonntag newspaper on Sunday.

Britain's post-EU prospects were given a verbal boost on Sunday by US President-elect Donald Trump, who said he favoured a quick trade deal with the UK.

But a fast-track bilateral deal with Washington will be difficult in practical terms.

Under EU rules Britain cannot sign trade deals with third party states until it is formally outside the bloc, a position that does not change despite the UK voting to leave.

A two-year negotiating period is foreseen in EU legislation for any country choosing to leave the 28-member bloc, a process which starts by triggering Article 50 of the EU's Lisbon Treaty.

May has promised to formally launch Brexit talks by the end of March and the EU's chief Brexit negotiator Michel Barnier has said there should be an agreement in place ahead of the European Parliament elections in 2019.

But even if the prime minister's plan outlined on Tuesday wins widespread support, legal challenges could still scupper her Brexit timetable.

Britain's Supreme Court is due to rule later this month on whether May must seek parliamentary approval before triggering Article 50, which could delay the start of Brexit negotiations.