LONDON (BLOOMBERG) - Britain lost its first battle with the European Union over the timetable for Brexit talks as the bloc's chief negotiator warned that the consequences of leaving will be "substantial."

On day one of the negotiations, Prime Minister Theresa May's government gave in to EU demands to discuss the terms of its divorce - including the exit fee - before any consideration can begin on the future trade deal Britain wants with Europe's common market.

The EU's chief negotiator, Michel Barnier, bluntly warned that such an accord would not be fleshed out until after Britain leaves in less than two years. It was a clear rebuff to May's stated ambition of wrapping up a new free trade agreement quickly.

"I'm not in a frame of mind to make concessions," Barnier told reporters at the end of the first day of talks in Brussels. "The UK has decided to leave the EU. It's not the other way around."

This uncompromising stance is "not about punishment" or "revenge," but simply a consequence of Britain's decision to exit, he said. "The consequences are substantial."

The discussions between Britain's Brexit Secretary David Davis and Barnier marked the end of the beginning of what both sides expect to be a complicated and confrontational process to unwind more than four decades of membership. The clock is ticking down to midnight on March 29, 2019, when Britain will leave the EU, with or without a deal.

Almost a year after British voters took the decision to leave the bloc, Davis took a team of officials to open the negotiations with Barnier in the European Commission's Berlaymont building on Monday.

Just a month ago, Davis had predicted "the row of the summer" would erupt over how to structure the talks on Brexit. He wanted parallel discussion, covering both the future trade deal and the terms of Britain's departure - including a demand for an exit payment of as much as 100 billion euros (S$154 billion).

Britain is "very conscious of how they will use that time sequence to pressure us, and we'll avoid that at every turn," Davis told ITV on May 14. By Monday, he'd given up the fight.

FAIR DEAL

Davis said Britain hadn't backed down. When the EU "decides we have made enough progress - their words - both sets of dialogs will continue, including free trade," he said. Britain and the EU hope the first phase of talks focusing on the exit terms will conclude by October, allowing trade negotiations to begin.

Both sides were keen to emphasise their desire to work positively and to reach a fair deal that will foster friendly relations once Britain leaves. Their early priority will be to reassure the estimated 4.5 million European and British nationals living in each others' countries that they won't be forced to leave their homes or find new jobs after Brexit.

May, bruised by an election this month that cost her Conservatives their parliamentary majority, will make her case for a quick agreement on residency for EU nationals and employment rights at a summit of European leaders in the Belgian capital later this week. She will then publish a detailed outline of her offer on Monday, Davis said.

Solving the vexed question of keeping the peace and an open border between the UK province of Northern Ireland and the Irish Republic will also be an urgent priority in the talks, Barnier and Davis agreed.

DIPLOMATIC PLEASANTRIES

The two negotiators already know each other well. They both served as Europe ministers - for France and Britain, respectively - at the same time during the 1990s. They tried to present a cordial and friendly image to the world at their first session. Both are keen hikers and they exchanged presents reflecting their shared interest.

Davis gave Barnier an original, French-language account of an expedition to the Himalayas, while Barnier reciprocated with a traditional walking stick from his home region of Savoie.

After a private one-on-one meeting, the pair went to lunch with four senior officials, dining on Belgian asparagus, red mullet and meringue cake with strawberries.

Despite the diplomatic pleasantries, the scale of the challenge quickly became clear, as both men openly acknowledged the risk that the talks could become dangerously overheated.

"I will do all I can to put emotion to one side," Barnier said. "There will be no hostility on my side."

The negotiations opened against a backdrop of turmoil in Britain after May's decision to call an early vote to strengthen her position went spectacularly wrong and she was lambasted for her response to a horrific fire at a London tower block of social housing.

May's Tories are now stuck in power-sharing talks with Northern Ireland's Democratic Unionist Party, while she's under pressure from some ministers to seek a softer Brexit.