The prospect of a delay from the original target of announcing a deal next month alarmed business leaders, who said firms on both sides of the Channel were anxious to know where they stand.
But EU and UK negotiators are still at odds over the terms of a transition period, following a week of inconclusive talks in Brussels.
Red lines remain over the treatment of EU migrants arriving after Britain’s formal exit on March 29 next year, and the bloc’s ability to cut off single market access for the UK if it breaches the transition terms.
Three EU sources said talks could take until summer. Unless a deal is agreed by a summit in March, the next summit is not due until June. “We are not tied up to this deadline,” said one senior EU official. “This is a self-imposed date.”
Adam Marshall, director general of the British Chambers of Commerce, said he believed the EU was “sabre-rattling” to put pressure on the UK, but warned any delay would be damaging.
“Businesses on both sides of the Channel want clarity as soon as possible about the short-to-medium terms of trade,” he said.
Japanese business leaders met Theresa May this week and called for a transition deal to give “clarity and certainty”.
Business groups including TheCityUK and the CBI have said a transition deal is needed within weeks to prevent jobs, capital and investment fleeing the bloc.
A UK Finance spokesperson said: “It is crucial and urgent for businesses that a definitive transition period is agreed by the UK and EU 27 governments in advance of the March European Council meeting.”
But EU lead negotiator Michel Barnier said there will be no “certainty” until a final exit treaty is ratified in 2019. A draft European Commission legal text proposing a power for the EU to suspend the UK’s single market access caused Brexit Secretary David Davis to protest at “frankly discourteous language”.
UK officials said they were relaxed and believed that although the EU-27 were using the threat of a delay to seek “extra leverage” in the talks, in reality the EU also wanted a deal in March.
Labour today denied claims Jeremy Corbyn told Mr Barnier during talks this week that he was willing for the UK to stay in the EU customs union. His spokesman said he had talked about a new customs union being possible.
Meanwhile, the Commission has issued a slew of “preparedness” notes to firms warning of the possibility of a no-deal Brexit, covering financial services, environment law and motor vehicles.
The 35 notes published since January warn of “considerable uncertainties” over the content of a future exit treaty and tell firms to prepare for the end of EU laws in a vast array of areas.