Boris Johnson says there is a "strong possibility" the UK will fail to strike a post-Brexit trade deal with the EU.
Photo: AFP
Speaking for the first time since a crunch meeting in Brussels, the prime minister said "now is the time" for firms and people to prepare for a no deal outcome.
Talks continue between the two sides, but Johnson said they were "not yet there at all" in securing a deal.
Time is running out to reach an agreement before the UK stops following EU trade rules on 31 December.
Weeks of intensive talks between officials have failed to overcome obstacles in key areas, including competition rules and fishing rights.
Johnson met European Commission President Ursula von der Leyen on Wednesday, but the pair failed to make a breakthrough.
Johnson said British negotiators were going to "go the extra mile", and he was prepared to travel to Paris or Berlin for talks if necessary.
But he said the EU wanted to keep the UK "locked" into its legal system, or face punishments such as taxes on imports, which had "made things much more difficult".
Final decision
The prime minister said the EU's proposals would mean, despite leaving the bloc earlier this year, the UK would be forced to remain a "twin" of the 27-country organisation.
"At the moment, I have to tell you in all candour, the treaty is not there yet and that was the strong view of our cabinet," he said.
The two sides have said there will be a final decision on a whether a trade deal can be done on Sunday.
The UK is understood to have offered fresh proposals on Wednesday but that did not lead to a breakthrough and a senior Downing street source indicated talks could continue beyond Sunday if progress had been made.
But Johnson said that "looking at where we are," it was vital the UK prepares for the "Australian-style option" of not having a free trade deal with the EU.
"There's a strong possibility that we will have a solution much more like Australian relationship with the EU than a Canadian relationship with the EU.".
Australia is negotiating a free trade deal with the EU but currently does not have one and largely does business with the EU on World Trade Organization (WTO) rules.
Moving to WTO rules on 31 December could result in tariffs being imposed leading to higher prices for the goods the UK buys and sells from and to the EU, among other changes.
Canada finalised a deal with the EU in 2017.
Johnson said he "tried very hard to make progress" at his dinner with von der Leyen but the EU was making things "unnecessarily difficult".
Talks ongoing
Meanwhile, the EU has set out the contingency measures it would take in the event of no trade agreement being reached with the UK.
The plans aim to ensure that UK and EU air and road connections still run after the post-Brexit transition period ends on 31 December.
They also allow the possibility of fishing access to each other's waters for up to a year, or until an agreement is reached.
Talks between the UK's chief negotiator Lord Frost and his EU counterpart Michel Barnier resumed on Thursday are continuing in Brussels.
Earlier Foreign Secretary Dominic Raab said it was "unlikely" the negotiations would be extended beyond Sunday, when the two sides have promised a final decision.
Meanwhile, EU leaders are also meeting in the Belgian capital for a two day-summit of their own, although Brexit will not be the main focus of their discussions.
Arriving at the summit, von der Leyen said the conditions for a trade deal would have to be "fair for our workers and our companies."
"This fine balance of fairness has not been achieved so far," she said, adding that a decision would be taken on Sunday.
Before the prime minister's remarks, Labour leader Sir Keir Starmer urged Johnson to "get on and deliver" a deal, adding the outstanding issues "are capable of resolution".
Asked whether his party would back a deal in a vote in the Commons, he said: "We will look at it - and we will act in the national interest."
"But on a straight choice between no deal and deal, then deal is clearly in the national interest," he said.
- BBC