Both sides say they want to agree arrangements to cover nearly $1 trillion in annual trade but talks are at an impasse, with Britain standing to lose zero-tariff and zero-quota access to huge European single market.

PM Boris Johnson (L) and European Commission chief Ursula von der Leyen have given their negotiators until Sunday before a decision is made on whether to keep talking or give up.
PM Boris Johnson (L) and European Commission chief Ursula von der Leyen have given their negotiators until Sunday before a decision is made on whether to keep talking or give up. (AFP)

A Brexit trade deal between Britain and the European Union is looking to be hanging in the balance, after leaders of both sides gave a gloomy assessment of progress in last-gasp talks.

"It's looking very, very likely we'll have to go for a solution that I think will be wonderful for the UK, we'll be able to do exactly what we want from January 1, it will obviously be different from what we set out to achieve," UK's Prime Minister Boris Johnson told reporters on Friday.

"If there's a big offer, a big change in what they're saying then I must say that I'm yet to see it," said Johnson, the face of the "leave" campaign in Britain's 2016 Brexit referendum.

Von der Leyen was quoted by an EU official as telling leaders of the bloc's 27 member states attending a summit in Brussels on Friday that prospects for a deal had worsened.

"The probability of a no-deal is higher than of a deal," the official said on condition of anonymity. 

Ireland and Germany tried to raise spirits, agreeing that a pact was "difficult but still possible."

A Brexit without a trade deal would damage the economies of Europe, send shockwaves through financial markets, snarl borders and sow chaos through the delicate supply chains which stretch across Europe and beyond.

READ MORE: EU and UK give each other until Sunday to save Brexit talks

Transition period nears end

The comments did nothing to inspire confidence in the British pound, which extended its losses on currency markets, dropping more than one percent against the dollar.

"Traders are turning their back on the pound as the language being used now is more serious and a fears of a no-deal have increased considerably," CMC Markets analyst David Madden told AFP news agency.

UK chief negotiator David Frost and his EU counterpart Michel Barnier are trying to carve out a deal by Sunday, with just three weeks left until the end of a transition period following Britain's departure from the bloc in January.

Whatever happens, Britain will leave the EU single market and customs union, leading to the re-introduction of border checks for the first time in decades.

That has already raised the prospect of heavy traffic clogging roads leading to seaports in southern and southeast England, as bureaucracy lengthens waiting times for imports and exports.

Logjams at the Felixstowe container port in eastern England and elsewhere have already raised fears of more to come, and delays to deliveries to shops, businesses, and industry.

But Johnson's spokesperson said they were mainly caused by a "global spike" in demand for consumer goods and the effect of the coronavirus outbreak on shipping patterns and container capacity.

READ MORE: EU, UK resume Brexit trade talks in search of breakthrough

Crucial points of difference 

Brexit trade talks have been deadlocked over the extent of EU access to British fishing grounds and rules governing fair competition.

An EU official refused to rule out a last-minute "turnaround" for a deal, even after the bloc published "no-deal" contingency planning in what was seen as a warning shot to Britain.

Johnson again said fishing and the so-called level playing field were key issues, in particular a "ratchet clause" that would bind Britain to match any future EU legislation.

Von der Leyen told a post-summit news conference the proposed "equivalence" rules would not be compulsory and Britain could act as it sees fit.

"We would simply adapt the conditions for access to our market accordingly," she added. Johnson's spokesperson said that would still leave Britain tied to decisions made in Brussels.

'Australia terms'

Johnson won a snap election a year ago on Saturday with the promise of an "oven ready" Brexit deal that would break years of political deadlock since Britain voted in 2016 to exit the EU.

But he has been under pressure to make good on his promise, including from working-class towns like Blyth, who were won over to his ruling Conservatives after voting for Brexit.

Johnson's assessment that Britain would "prosper mightily" on WTO rules with the EU — what he calls "Australia terms" — has not been universally welcomed.

READ MORE: UK, EU strike Northern Ireland pact but Brexit trade deal remains in doubt

'Be careful what you wish for'

Tariffs and quotas would drive up the cost of business that would be passed on to consumers in the form of higher prices in an economy already reeling from the impact of the coronavirus pandemic.

As a whole, the EU is Britain's biggest trading partner. 

Australia in comparison is the EU's 19th-largest trading partner.

The country's former prime minister, Malcolm Turnbull, warned Johnson on Thursday, "Be careful what you wish for."

"Australia's relationship with the EU is not one from a trade point of view that I think Britain would want, frankly," he said.

READ MORE: Turkey, UK 'very close' to free trade deal for post-Brexit era

Source: TRTWorld and agencies