UK Prime Minister Boris Johnson 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.
The mood worsened after von der Leyen told EU leaders at a marathon Brussels summit there were "low expectations" and the "probability of a no-deal is higher than that of a deal".
Ireland and Germany tried to raise spirits, agreeing that a pact was "difficult but still possible".
But Johnson said it was looking "very, very likely" that Britain would end up dealing with its biggest single trading partner on World Trade Organisation (WTO) terms from the New Year.
There is a way to go in the negotiations, but it is looking very, very likely that we will have to go for an Australia-style solution. pic.twitter.com/7fEXe1FJTF
— Boris Johnson (@BorisJohnson) December 11, 2020
'No big offer, no big change'
"If there's a big offer, a big change in what they (the EU) are saying then I must say that I've yet to see it," he told reporters.
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," CMC Markets analyst David Madden told the French AFP news agency.
"In light of how things have gone recently and with the weekend around the corner, some dealers are trimming their exposure to equities" https://t.co/8ODBVWBvZ9$NIO $TSLA $DIS $EURUSD $GBPUSD $XAU $SPX $BWY $CPI
— David Madden (@dmadden_CMC) December 11, 2020
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 last January.
