Boris Johnson has reiterated he is “confident [the UK] will prosper” outside the EU if a post-Brexit trade deal is not agreed with the bloc.
Talks are due to restart in Brussels later, with the UK’s chief negotiator saying there had been “progress in a positive direction”.
But Lord David Frost also warned “significant elements” of the deal are yet to be agreed.
Irish Foreign Minister Simon Coveney said talks had to “make big progress”.
Sticking points between the two sides focus on competition rules and state aid for businesses, as well as fishing rights.
The UK left the EU on 31 January, but continues to follow the bloc’s rules until the end of the year while negotiations take place.
Any deal between the UK and EU would need to be ratified by parliaments on both sides, so time is running out for an agreement to be reached and to get the sign off before 31 December.
If there is no agreement at that point, trade between the two will default to World Trade Organization (WTO) rules – with tariffs set to be introduced on many imports and exports, which could push up costs.
The government was planning a policy re-launch this week after rows within Downing Street and departures of key members of staff – including Mr Johnson’s chief adviser Dominic Cummings.
As part of its reset statement, No 10 said the talks this week would be “crucial”.
The statement added: “The prime minister has been clear that we will not accept any proposals in the negotiations that undermine our status as a sovereign, independent country.
“If the EU don’t respect the sovereignty of the UK, we will leave on Australian terms and the prime minister is confident that we will prosper.”
Mr Johnson is now having to self-isolate for 14-days after meeting an MP who later tested positive for Covid-19.
But in a video made by Downing Street, he said he was “in good health”, “had no symptoms”, and would “continue to lead” from his flat.
Government and EU officials describe this negotiating week as “crucial”.
Time really is running out now. The standstill transition period, which followed Brexit in January, stops at the end of next month.
By then, not only does a deal need to have been agreed, but also ratified by parliament in the UK and the EU.
Chief UK negotiator David Frost said on Sunday that some progress had been made of late, but that considerable differences remained.
He said he’d only agree to a deal that respected UK sovereignty and a no deal outcome was still possible.
To avoid that, the government and the EU know they will have to compromise.
“This is move week,” proclaimed Ireland’s Foreign Minister Simon Coveney.
But who’s going to move first? And are both sides prepared to concede enough to clinch a deal?