BRUSSELS—The European Union’s chief Brexit negotiator said he won’t recommend to the bloc’s leaders next week that talks with Britain advance to a new stage, saying there was too little progress on divorce issues.

Michel Barnier’s comments on Thursday mean talks on the future trading relationship between the U.K. and the EU may not start in earnest until early 2018.

That would give negotiators a small window to talk about a future deal, since the EU wants talks wrapped up by October 2018 to allow six months to ratify an agreement before Britain’s scheduled exit date.

The pound fell against the euro and the dollar after Mr. Barnier’s remarks.

The EU has said it will only discuss a future trade relationship with Britain once “sufficient progress” has been made on major divorce issues: citizens rights, the financial situation and the status of the border in Ireland. Mr. Barnier has been mandated to decide when to make that recommendation but the final decision on this will be made by EU leaders.


Speaking at the end of the fifth round of talks, Mr. Barnier said no significant advances had been made in negotiations this week and said there was now a “disturbing” deadlock on the EU’s demand that Britain stand by past spending pledges to the bloc.

There also appeared to be no significant advance on other key divorce issues, for example, the future rights of EU citizens in the U.K. Brussels is demanding those rights are secured by the European Court of Justice, a position London doesn’t accept. The EU also wants its citizens to be able to bring their families to Britain in the future and to continue to receive all social security payments from the U.K. after Brexit if they return home.

However, in a move U.K. officials said signaled flexibility, Mr. Barnier said he believed “decisive progress is within our grasp” in the next two months and said he would “explore a way forward, out of the deadlock.”

The bloc’s leaders meet in Brussels next Thursday and Friday. British officials said they will be looking at discussions closely to see if leaders offer any flexibility on the way ahead.


U.K. Brexit Secretary David Davis said Britain wasn’t prepared to make detailed financial commitments to the EU for the post-Brexit period but again called for the EU to start discussions about the future relationship.

“As we look to the October European Council next week, I hope the member states will recognize the progress we have made and take a step forward,” he said.

In a speech in Florence in September, U.K. Prime Minister Theresa May said Britain will contribute to the EU budget in 2019 and 2020, as part of a two-year transition period after the March 2019 Brexit date. She also indicated Britain would stand by its financial “commitments” to the bloc beyond that point but that Britain would only detail that second pledge after negotiations begin on the trade relationship.

British officials say they believe the EU could still inch negotiations forward, possibly by giving Mr. Barnier a mandate to start discussions on the U.K. request for a post-Brexit transition. However in recent days, German and French diplomats have signaled they won’t give the green light for transition discussions until there is greater progress in the talks.


This week’s talks come as Mrs. May faces growing political challenges at home after losing her parliamentary majority in a June snap election and following a difficult and divisive annual meeting of her Conservative party last week.

This week, Mrs. May has said Britain is making contingency plans for a no-deal scenario in the Brexit talks. Mr. Davis said the government was prepared to spend whatever was necessary to properly prepare for that scenario.

However, Mr. Barnier warned against focusing on a no-deal scenario, which could lead to the reintroduction of tariffs and border controls and cause a sharp economic impact.

“No deal would be a very bad deal,” he said.


Write to Laurence Norman at laurence.norman@wsj.com and Valentina Pop at valentina.pop@wsj.com