(Bloomberg) — U.K. Prime Minister Boris Johnson warned business and the public to prepare to leave the European Union’s single market without a trade deal as negotiations with the bloc falter.Speaking a day after crisis talks with European Commission President Ursula von der Leyen ended without a breakthrough, Johnson said Britain will continue to seek a deal. But he also warned that the bloc’s demand that the U.K. follow future changes in the EU’s rules is a major obstacle.“There’s now the strong possibility 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 in a pooled TV interview Thursday.“Looking at where we are, I do think it’s vital that everybody now gets ready for that Australian option,” he said. Under that option, the U.K. would fall back on the rules of the World Trade Organization and face tariffs as well as quotas when the transition ends on Dec. 31.Former Australian Prime Minister Malcolm Turnbull later told the BBC’s “Question Time” program that his country doesn’t have a “satisfactory” trade relationship with the EU.“Be careful what you wish for: Australia’s relationship with the EU is not one, from a trade point of view, that Britain I think would want,” he said. “There are very big barriers to Australian exports, agricultural products in particular. There’s a lot of friction in the system in terms of services. So there’s a lot to aim for.”The pound extended its decline after Johnson’s intervention. His remarks couldn’t come at a more delicate time as EU leaders meet in Brussels after seeing off a threat by Hungary and Poland to block a $2.2 trillion stimulus package. At the same time, a much-touted U.K. trade deal with Canada has hit delays.Atmosphere SouredWith the mood in the Brexit negotiating room suddenly turning pessimistic, any deal with the U.K. is now likely to depend on a last-minute intervention by either German Chancellor Angela Merkel or France’s Emmanuel Macron. Both are in the middle of an EU summit in Brussels and are in a position to make a difference as the two major powerbrokers in the bloc.One EU official close to the Brexit discussions said that Johnson’s words are more conciliatory than they might look at first glance: the prime minister could have chosen to end the negotiations, but he didn’t. Another official in Brussels brushed off the prime minister’s statement, saying it wasn’t a surprise and leaders have other things to talk about.And another European diplomat who’s following the negotiations closely said gloomy warnings are to be expected at this point in the process. He said that while the outcome is clearly hanging in the balance, he’s still predicting a deal either on Sunday or in the following days.It’s been more than four years since the U.K. voted to leave the EU, and both sides have dealt with their fair share of drama and brinkmanship. This time, it feels different and they’ve had almost a year to settle the same old stubborn sticking points.Moving On?One EU diplomat said the bloc had mentally moved on. It is possible that the two sides could agree on a “friendly no-deal,” allowing trade talks to resume later in 2021, another EU official said.Indeed, the bloc unveiled its contingency plans, first reported by Bloomberg, that show in actions that there is very much a Plan B in place. They include keeping flights in the air and trucks on the road, with the idea that the talks will resume.The negotiations have long been dogged by the disagreements over the EU’s right to fish in British waters and the so-called level playing field rules for fair competition for business. There is still no sign of how the differences over the fair competition issue can be bridged, an EU official said earlier in the day.Johnson argues that, for reasons of sovereignty, Britain must not be forced to follow the EU’s competition rules as they evolve in future years.Johnson’s Red LineThe EU’s demand “basically means that whatever new laws they brought in, we would have to follow or else face punishment,” Johnson said. “Clearly that’s not a sensible way to proceed.”The EU says the U.K. must keep up with its changing regulations to protect the integrity of the bloc’s single market. Johnson likened that to treating the U.K. and the bloc like twins, with Britain “locked into the EU’s regulatory penumbra.”“If the EU decides to have a haircut, then the U.K. has got to have a haircut or else face punishment,” he said. “Or the EU decides to buy an expensive handbag, then the U.K. has to buy an expensive handbag too or else face tariffs and punishment.”He also rejected EU proposals on fisheries that would mean the U.K. still wouldn’t have control of its waters, many years after people voted to leave the EU.Both sides appear to be coming to terms with the fact that it may be impossible to reach a compromise. Failure to do so would deliver a major blow to pandemic-struck economies and disrupt supply chains for businesses.In another Brexit development, the U.K. published a document Thursday outlining how trade will work in Northern Ireland, and committed to covering the paperwork costs for businesses moving food into the province from Great Britain. Supermarkets had previously warned they may withdraw from Northern Ireland if they had to pay the costs.Johnson emphasized the U.K. hasn’t stopped trying.“What I’ve said to our negotiators is that we’ve got to keep going,” Johnson said. “And we’ll go the extra mile. And we will, and I will go to Brussels, I’ll go to Paris or go to Berlin, or wherever, to try to get this home and get to a deal.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.