Boris Johnson has been dealt a damning Brexit blow after the DUP rejected his hopes for a deal - hours before a crucial EU summit.
The pound fell by 0.5% after the Northern Irish party’s leader Arlene Foster issued a 6.45am statement saying she cannot support the Prime Minister's plan “as it stands”.
That means even if Mr Johnson secures a deal at today’s summit with 27 EU leaders, it’s likely to be voted down in Parliament on Saturday.
Talks in Brussels are still ongoing before the two-day summit kicks off at 2pm.
The UK and EU have still not reached a deal and still not published a legal text of it despite missing a string of last minute deadlines.
Reports this morning suggested that apart from the DUP's objections, EU and UK officials had almost reached a draft deal with some outstanding issues on VAT.
Boris Johnson spoke to European Commission President Jean-Claude Juncker this morning. Mina Andreeva, the European Commission's chief spokeswoman, tweeted: "Contacts between #EU and UK teams are continuing. JunckerEU just spoke to Boris Johnson. Every hour and minute counts before the #EUCO. We want a #deal."
DUP leader Ms Foster said the sticking points were customs, consent and VAT rules.
She is thought to be concerned about rumours of a customs border down the Irish Sea, and an ongoing row about whether EU VAT rates would apply in Northern Ireland.
Currently there is a system where firms pay domestic VAT in the same way as VAT on imports or exports between EU states. This would leave questions about how firms in Ireland and Northern Ireland are charged.
The DUP also fear plans to consult the (collapsed and dormant) Stormont Assembly over any future deal could leave them without a veto. They are thought to want a double lock where both nationalists and unionists would have to approve a deal.
DUP chiefs had three face to face meetings with the Prime Minister in quick succession in a desperate bid to overcome the hurdles.
But today Ms Foster and DUP Westminster leader Nigel Dodds said: “As things stand, we could not support what is being suggested on customs and consent issues and there is a lack of clarity on VAT.
“We will continue to work with the Government to try and get a sensible deal that works for Northern Ireland and protects the economic and constitutional integrity of the United Kingdom.”
Housing Secretary Robert Jenrick said the government wanted to work through the DUP's concerns in the coming hours.
He told BBC Breakfast: "The Prime Minister and his team are in intensive negotiations with all parties, including with the DUP. We want to provide sufficient comfort for the DUP and unionists in Northern Ireland to feel that the arrangements we would put in place with this deal are sufficient to give them comfort to support it."
Last night Boris Johnson compared Brexit to climbing Everest and escaping Shawshank tonight in a bullish address to MPs that lasted just eight minutes.
The PM told Tory MPs: “If you’ll excuse a mountaineering metaphor, we are at the Hillary Step and the summit, you can see but it’s shrouded in cloud. But we can see it and we will get there.”
The rocky outcrop named after mountaineer Sir Edmund Hillary collapsed in around 2015.
Sources also said Mr Johnson compared the metaphorical 'tunnel' in Brexit talks to the effluent-filled escape tunnel in the film The Shawshank Redemption.
And he claimed the UK would leave deal or no deal on October 31 - despite the Brexit Secretary confirming he would ask for a delay by 11pm on Saturday.
Mr Johnson needs to get a deal approved before the weekend if he is to avoid a major clash over asking for an extension to the current October 31 deadline.
The Benn Act states he must seek a three-month delay if MPs do not give their backing to an agreement on Saturday.
Former Attorney General Dominic Grieve accused Boris Johnson of trying to “bamboozle” MPs into backing a full legal deal without having time to read it.
Mr Grieve is a Remain backer who was thrown out of the Tory party - but several hardline Brexiteers voiced the same fears last night.
Leaving a meeting with Mr Johnson, they said they must see a full legal text before they will give their backing to a deal in Parliament.
Today's crisis has echoes of Theresa May's disastrous Brexit negotiations almost two years ago - when she was forced to break off from talks to take a phone call from DUP leader Ms Foster refusing to accept her terms.
After Ms Foster's announcement today, the pound immediately plunged about half a percentage point against the Euro in a few minutes before later steadying.
