There will be no post-Brexit trade deal between the UK and EU unless there’s a “substantial shift” from Brussels in the coming days, a UK government source has told the BBC.
It is understood there is likely to be a decision before Christmas on whether or not a deal can be reached.
But UK sources say it is increasingly likely the UK will leave with no deal.
The two sides remain at odds over how many years it will take to phase in new fisheries arrangements.
The UK will stop following the EU’s trading rules in less than two weeks’ time.
If there is no agreement by 1 January, the two sides will rely on World Trade Organization (WTO) rules to govern exports and imports, which could see charges introduced on goods being sold and bought – and could lead to an increase in prices.
A government source told the BBC: “We need to get any deal right and based on terms which respect what the British people voted for.
“Unfortunately, the EU are still struggling to get the flexibility needed from member states and are continuing to make demands that are incompatible with our independence.
“We cannot accept a deal that doesn’t leave us in control of our own laws or waters.
“We’re continuing to try every possible path to an agreement, but without a substantial shift from the [European] Commission we will be leaving on WTO terms on 31 December.”
Prime Minister Boris Johnson has vowed to keep talking but warned gaps had yet to be bridged.
Senior MEPs in the European Parliament have said they will not be “rushed” into signing off a deal on their side and want to see the text of any agreement by Sunday if they are to approve it by the end of the year.
Speaking in the European Parliament on Friday, the EU’s chief negotiator, Michel Barnier, said that while there was still a “chance” of a deal, the “path was very narrow”.
The two sides have been at odds over the length of time it will take to introduce new arrangements once the UK leaves the bloc’s Common Fisheries Policy.
The UK, led by its chief negotiator, David Frost, has insisted its sovereign rights over its waters must be respected from day one and its fleets must be able to keep a much larger share of their own catch.
The EU is insisting on a much longer transition period, with guarantees on access and how catches are distributed.
The two sides are reported to have made progress in recent days on the issues of fair competition and what to do if the UK is deemed to get an unfair competitive advantage by moving away from EU rules and standards.
If a deal is reached between the two sides, it would need to be agreed by parliaments in the UK and the European Union’s member states.
UK MPs have now finished for the Christmas break, but Cabinet Office minister Michael Gove said on Thursday that they could be called back to ratify a deal in the coming days, were one to be agreed.
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