LONDON/BRUSSELS: Prime Minister Boris Johnson said on Thursday there was "a strong possibility" Britain and the EU would fail to safeguard free trade past the end of the year, a prospect that has weighed on the pound as markets see increasing risk of economic rupture.

The European Union and Britain are at loggerheads over fishing rights, economic fair play and dispute settlement despite months of talks on a new trade deal to keep an estimated trillion dollars of commerce free of tariffs or quotas from 2021.

"We need to be very, very clear there's now a strong possibility, strong possibility that we will have a solution that's much more like an Australian relationship with the EU, than a Canadian relationship with the EU," Johnson said.

"It doesn't mean it's a bad thing."

The EU, the world's largest trading bloc with 27 countries and 450 million consumers, does not have a free trade accord with Australia.

Under such a scenario Britain, the world's sixth biggest economy, would see trade barriers spike with the EU, its main economic partner, in just three weeks time as it completes its transition out of the bloc following Brexit.

Johnson and the EU's chief executive, European Commission President Ursula von der Leyen, failed to overcome persistent divisions over a dinner in Brussels on Wednesday.

While they gave their negotiators extra time to seal an agreement and said they would decide the next steps by the end of the week, the bloc set out on Thursday its contingency plans for the split in trading ties from midnight on Dec. 31.