British Prime Minister Boris Johnson will tell the EU he is prepared to leave trade talks resuming in London this week rather than compromise on what he regards as a core principle of Brexit.
The feeling is growing on both sides that a breakthrough on a trade agreement will prove impossible.
Mr Johnson will on Monday set the October 15 European Council meeting as the deadline for a deal and says the UK is prepared to end the Brexit transition period without one.
“There is still an agreement to be had,” he will say, pledging that his government will work hard through September and urging the bloc to “rethink” its positions.
“But we cannot and will not compromise on the fundamentals of what it means to be an independent country to get it,” Mr Johnson said.
A European diplomat said informal consultations before this week’s talks ended with no shifts in position.
Another diplomat said the view in Brussels was that Brexit realists and Brexit ideologues in the British government were in dispute, and it was uncertain which side would prevail.
Meanwhile a spokesman said the government was “considering fall-back options” in case it could resolve “outstanding issues” in the Brexit withdrawal agreement related to Northern Ireland.
The Financial Times reported that a planned internal market bill to ensure smooth trade between the four UK nations would override key parts of the withdrawal agreement on state aid and Northern Ireland Customs.
The UK would revert to trading with its biggest market on terms set by the World Trade Organisation if there were no agreement in place by December 31.
It would mean the return of certain tariffs and quotas, and extra paperwork for businesses.
On Monday, Mr Johnson will say that in the absence of a deal, the UK will be “ready to find sensible accommodations on practical issues", including aviation, haulage and scientific co-operation, his office said.
The two sides have been at an impasse for months over state aid and fisheries.
The EU is seeking to keep the access its fisherman have to UK waters to protect jobs and coastal communities.
Britain wants reduced access for EU boats and to make it conditional on regular negotiations.
On state aid, Mr Johnson’s government wants the freedom to chart its own course, while the EU is demanding to know the British government's plans to ensure fair competition.
Negotiators have scheduled eight hours of talks on both issues this week, an agenda published on Friday showed.
On Sunday, Foreign Secretary Dominic Raab accused the bloc of trying to undermine the UK’s Brexit decision by keeping it bound to the rules of the EU’s single market.
“This week is an important moment for the EU to really effectively recognise that those two points of principles are not something we can just haggle away,” Mr Raab told Sky News..
"They are the very reasons we are leaving the EU."
He said state aid was a “point of principle” for the UK rather than an indication that the government was preparing major interventions.
“I don’t think the EU should be worried about that,” Mr Raab said.
Michel Barnier, the bloc’s top negotiator, said last week he was “worried” and “disappointed” by the current state of talks, and that Britain would need to shift its position to reach an agreement.