Brexit: Boris Johnson tells EU to shift its stance 'substantially' with trade talks in 'serious situation'

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Boris Johnson has told EU chief Ursula von der Leyen that Brexit trade talks are now in "a serious situation" and that a no-deal outcome is "very likely" unless the EU changes its stance "substantially".

The prime minister spoke to the European Commission president by phone on Thursday evening, in which the two leaders took stock of the current state of EU-UK negotiations.

It comes ahead of the end of the Brexit transition period in two weeks' time.

During the call, Mr Johnson "underlined that the negotiations were now in a serious situation", a Downing Street spokesperson said.

The prime minister told Ms Von der Leyen that "time was very short and it now looked very likely that agreement would not be reached unless the EU position changed substantially", Number 10 said.

The spokesperson added: "He said that we were making every effort to accommodate reasonable EU requests on the level playing field, but even though the gap had narrowed some fundamental areas remained difficult."

So-called level playing field provisions are commitments to fair competition and a set of common rules and standards between the UK and the EU, although the prime minister is keen not to have the UK too closely bound to new Brussels regulations.

Watch: Why is fishing so important in Brexit talks?

Continuing differences over state aid rules remain a stumbling block to an agreement in this area, according to UK sources.

Mr Johnson was also said to have condemned the EU's position on the issue of fisheries as "simply not reasonable" and told Ms von der Leyen that, if there was to be an agreement, it "needed to shift significantly".

"The prime minister repeated that little time was left," the spokesperson said.

"He said that, if no agreement could be reached, the UK and the EU would part as friends, with the UK trading with the EU on Australian-style terms.

"The leaders agreed to remain in close contact."

The phrase "Australia-style terms" is Mr Johnson's favoured way of referring to the UK ending the Brexit transition period without a comprehensive free trade deal with the EU.

In her own statement after the phone call, Ms von der Leyen said: "We welcomed substantial progress on many issues.

"Yet big differences remain to be bridged, in particular on fisheries. Bridging them will be very challenging.

"Negotiations will continue tomorrow."

The pound, which has been trading at its highest levels for more than two years on Brexit deal hopes this week, slipped back slightly on the latest update.

Sterling dipped below $1.36 against the US dollar though it was still more than half a cent higher on the day.

After Mr Johnson and Ms von der Leyen's phone call, the UK's chief negotiator Lord Frost warned that "progress seems blocked and time is running out".

Discussions over the UK's future relationship with the EU had continued in Brussels on Thursday morning, with the two teams also having worked until late on Wednesday night.

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The European Parliament has set a three-day deadline for a post-Brexit trade deal to be agreed, as it warned MEPs will not have time to ratify an agreement this year unless it is ready by Sunday night.

However, UK sources said they were not tying themselves to that timetable to agree a legal text for a trade deal.

Meanwhile, MPs were sent home from parliament for the Christmas holidays on Thursday, with them not due to return to Westminster until 5 January.

However, Downing Street has said it could recall parliament from its Christmas recess as early as next week, should a trade deal be reached and need to be ratified before the end of the Brexit transition period on 31 December.

Senior cabinet minister Michael Gove downplayed the prospects of a deal being struck when he appeared before a committee of MPs on Thursday afternoon.

Watch: 10 ways to Brexit proof your finances

He told the House of Commons' Brexit Committee the "most likely outcome" was that the transition period would end without a deal in place.

"I think, regrettably, the chances are more likely that we won't secure an agreement," Mr Gove said.

"So at the moment less than 50%."

He added that, although recent talks with the EU had made progress, "significant" differences still remain between the two sides.

"The process of negotiation has managed to narrow down areas of difference," the Cabinet Office minister told MPs.

"It is certainly the case that there are fewer areas of difference now than there were in October or indeed July."

Without a trade deal being in place at the end of the Brexit transition period in two weeks' time, the EU and UK are likely to have to trade on World Trade Organisation rules from 1 January with tariffs imposed in both directions.