The likelihood of the UK crashing out of the European Union without a deal is “increasing by the day”, foreign secretary Jeremy Hunt has warned.

He also issued a veiled threat that the government could loosen regulation for financial services to ensure the City continued to "thrive".

The former health secretary, who was parachuted into his new role last month after Boris Johnson resigned, has called on member states to apply more pressure to EU chief negotiator Michel Barnier to get a deal agreed, or risk job losses and economic turmoil on both sides of the Channel.

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Speaking to the Evening Standard, Hunt said Barnier's current approach could lead to a “breakdown in relations and trust between Britain and European countries” which would be a “profound geo-strategic mistake”.

He added: “The probability of no deal is increasing by the day until we see a change of approach from the European Commission who have this view that they just need to wait and Britain will blink. That is just a profound misunderstanding of us as a nation.

“There is real chance of no deal by accident. Everyone is assuming, no, no, no, this will never happen. Well, actually, it could.

“France and Germany have to send a strong signal to the Commission that we need to negotiate a pragmatic and sensible outcome that protects jobs on both sides of the Channel because for every job lost in the UK, there will be jobs lost in Europe as well if Brexit goes wrong.”

This follows warnings from the UK government that if Brussels maintains its hardline approach, around 7,000 Europe-based investment funds could lose access to the City.

It also comes as officials seek to clarify the white paper in the hope that Barnier will soften his position towards a deal for financial services.

Ahead of high-level talks in Paris with French foreign minister Jean-Yves Le Drian, Hunt warned there would be "profound economic consequences for the rest of Europe" if his counterparts did not take action.

“Probably the City, as the financier of European business, is the central point to make here. If it became harder for European businesses to access finance, that is far from trivial," he said.

“The City itself would find a way to thrive, whatever the outcome of the Brexit negotiations.

“If it became a low-tax, low-regulation, offshoot fully outside the EU, it would find a way to thrive in those circumstances. But for European businesses the impact would be profound.”

Chancellor Philip Hammond got into hot water about 18 months ago for suggesting that the UK may cut red tape and taxes to "become something different" after Brexit.

"I personally hope we will be able to remain in the mainstream of European economic and social thinking. But if we are forced to be something different, then we will have to become something different," he told German newspaper Welt am Sonntag in January 2017.

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