British Prime Minister Boris Johnson said on Thursday there was "a strong possibility" Britain and the EU would fail to strike a trade deal, but vowed to do whatever he could to avoid a tumultuous split in three weeks.
The European Union and Britain are at loggerheads over fishing rights, economic fair play and dispute settlement, despite months of talks on a new deal to cover trade from Jan. 1 when the United Kingdom finally exits the bloc's orbit.
The two sides have set a deadline of Sunday to find an agreement and prevent a chaotic break.
After a meeting with his senior ministers, Johnson said they had agreed the treaty on the table did not work for Britain.
"We need to be very, very clear there's now a strong possibility, strong possibility that we will have a solution that's much more like an Australian relationship with the EU, than a Canadian relationship with the EU," Johnson said.
Australia, unlike Canada, has no comprehensive trade deal with the EU, leaving its trade mostly subject to tariffs. Johnson uses the comparison to suggest a deal is not necessary, though Australia has only a fraction of Britain's trade links to Europe.
"I do think it's vital that everybody now gets ready for that Australian option," Johnson said.
Under such a scenario Britain would see trade barriers imposed with the EU, its main economic partner, in just three weeks.
Sterling dropped against the U.S. dollar to $1.3262 on the remarks, down from around $1.33. It was last almost 0.9 percent lower on the day at $1.3274.
On Wednesday, Johnson and the EU's chief executive, European Commission President Ursula von der Leyen, failed to overcome persistent divisions over a dinner in Brussels.
The British prime minister, speaking as EU leaders met in Brussels, said the stumbling block was the bloc's insistence on "equivalence", tying Britain to its labour, social and environmental standards in the future, as well as to state aid rules for corporate state subsidies.
While Johnson said the public and businesses needed to ready themselves for the prospect of no deal, he kept alive the prospect an accord could still be found.
"What I've said to our negotiators is that we've got to keep going, and we'll go the extra mile … and I will go to Brussels, I will go to Paris or go to Berlin or wherever, to try to get this home and get to a deal," he said.
Earlier on Thursday, the bloc set out its contingency plans for the split in trading ties, keeping "certain air services" between Britain and the EU and basic connections by road freight and for road passengers for six months as long as the UK reciprocated.
Britain would examine the proposals, a government spokeswoman said. The European Commission also proposed that Britain and the EU continue to offer reciprocal access to their fishing waters for up to a year, an idea quickly rebuffed by London.
Britain left the EU in January and has since been in a transition period, with rules on trade, travel and business unchanged. That ends on Dec. 31.
If by then there is no agreement to protect around $1 trillion in annual trade from tariffs and quotas, businesses on both sides will suffer.
In a sign of potential disruption ahead, trucks heading towards the English port of Dover were stacked up for miles on Thursday, with Brexit stockpiling and pre-Christmas traffic blamed.
The British government has warned that even with a trade deal, 7,000 trucks heading for the Channel ports in southeast England could be held in 100-km (62-mile) queues if companies do not prepare the extra paperwork.