German Chancellor Angela Merkel has told British Prime Minister Boris Johnson that a Brexit deal is "overwhelmingly unlikely" unless Britain left Northern Ireland in the customs union, a Downing Street source said.
With just 23 days to go before the United Kingdom is due to leave the EU, the future of Brexit remains deeply uncertain and both London and Brussels are positioning themselves to avoid blame for a delay or a disorderly no-deal Brexit.
EU leaders reacted coolly to British Prime Minister Boris Johnson's, and while negotiations are ongoing, many diplomats say the chances of a swift deal before 31 October are low.
A source from Mr Johnson's Downing Street office said Ms Merkel spoke to the British leader on Tuesday morning and made clear that a deal was "overwhelmingly unlikely".
Ms Merkel said that for a deal, Northern Ireland would have to stay in the EU's customs union and full alignment with the EU forever, the source said.
"If this represents a new established position then it means a deal is essentially impossible not just now but ever," the Downing Street source said.
"It also made clear that they are willing to torpedo the Good Friday Agreement."
The British pound fell to a three-week low against the euro on Tuesday amid concerns a deal could not be struck before the October deadline.
The British government is preparing for Brexit negotiations to end this week, according to a report in the Spectator magazine.
But the magazine reported that Irish Prime Minister Leo Varadkar did not want to talk and said French President Emmanuel Macron and German Chancellor Angela Merkel were not likely to push the EU to discuss Britain's offer unless Ireland is ready to negotiate.
The stalemate was keeping sterling on the back foot at $1.2276, having pushed it to a six-day low of $1.2260 earlier. Against the euro, the pound was down 0.3 per cent at 89.55 pence, the lowest since 13 September.
Nomura's forex strategist Jordan Rochester said he was taking the Spectator report "with a huge pinch of salt".
"On the surface, it raises the chances of 'no-deal' marginally," Mr Rochester said. However, "because we're in this limbo with Brexit, any headline moves the market", he said.
Last week, Britain sent a proposal to Brussels to replace the Irish border "backstop" - an insurance policy to keep the border open between the Republic of Ireland and the British province of Northern Ireland - but the proposal has been rebuffed by EU leaders.
Mr Johnson has repeatedly vowed to take Britain out of EU on 31 October even without a divorce deal in place, but a law called the Benn Act requires him to seek a delay if the UK cannot agree on a withdrawal deal by 19 October.
A report in the Daily Telegraph on Monday said Mr Johnson intended to challenge that law in the Supreme Court.
