The UK has to “get ready” for no trade deal with the EU, Prime Minister Boris Johnson has said.
Unless there was a “fundamental” change of direction from the EU, he said the two sides would not be able to agree a post-Brexit economic partnership.
The UK set a deadline of Thursday to decide whether it was worth continuing talks amid continuing disagreements.
Both sides have indicated they want to carry on but the EU has said it is up to the UK to make the next move.
The BBC’s political editor Laura Kuenssberg said a no-deal outcome seemed to be moving closer after Thursday’s meeting of EU leaders – which the UK was not present at – failed to “move the dial”.
But she said there was still a “long way to go”, with the EU’s chief negotiator Michel Barnier due in London next week for further discussions.
And the European Commission president Ursula von der Leyen said EU negotiators would seek to “intensify” the talks in the coming days. She tweeted: “The EU continues to work for a deal but not at any price.”
🇪🇺-🇬🇧 talks: the EU continues to work for a deal, but not at any price.
As planned, our negotiation team will go to London next week to intensify these negotiations.
— Ursula von der Leyen (@vonderleyen) October 16, 2020
Speaking in Downing Street, Mr Johnson declined to be drawn on whether the UK was now willing to walk away from the process amid differences over fisheries and competition issues.
But he suggested the EU was unwilling to seriously consider the UK’s preferred option of a comprehensive free trade agreement based on the bloc’s existing arrangement with Canada.
The UK, he added, must look at the “alternative” – which he suggested was Australia’s much-more limited set of agreements with the EU.
The PM said: “Given that they (the EU) have refused to negotiate seriously for much of the last few months, I have concluded we should get ready for 1 January with arrangements more like Australia’s based on simple principles of global free trade.
“So now is the time for our businesses to get ready, and for hauliers to get ready, and for travellers to get ready.
“For whatever reason it is clear from the summit that after 45 years of membership they are not willing – unless there is some fundamental change of approach – to offer this country the same terms as Canada.
“And so with high hearts and complete confidence we will prepare to embrace the alternative.”
Both sides are calling on each other to compromise on key issues, including fishing and limits on government subsidies to businesses.
They are seeking an agreement to govern their trading relationship once the UK’s post-Brexit transition period ends in December.
Following the talks on Thursday, German Chancellor Angela Merkel said “in some places there was movement, in other places there is still a lot of work to do.”
— Barend Leyts (@BarendLeyts) October 15, 2020
In a conclusions document issued during the summit, the EU said progress in key areas was currently “not sufficient” to reach a deal and asked Mr Barnier to “continue negotiations in the coming weeks”.