UK has begun discussing ways to reach a free trade deal with the world's second-largest economy, British Chancellor of the Exchequer Philip Hammond said.

It will be the first time that the UK has embarked on such a major project with China, and could see greater access for major Chinese banks and businesses to the UK economy.

Despite the short-term economic shock from leaving the European Union, it was time to explore "new opportunities" across the world, including with China, one of the UK's biggest inward investors, Hammond said during an interview with BBC.

Hammond said that Britain is keen to do a free trade deal with China.

In return for greater access to the UK for its manufactured products and investment, China would reduce barriers to Britain's service industries such as banking and insurance as well as UK goods.

That would be an important source of export income for Britain.

As Britain leaves the European Union and is not bound by the rules of the European Union, perhaps it will be easier for countries like China that are outside the European Union to do business with Britain in the future, Hammond added.

Agencies contributed to this story.