British and EU negotiators are understood to be very close to delivering a headline Brexit deal ahead of Thursday’s European Council summit, the Telegraph understands.

Three separate EU sources said that talks were now extremely close to resolving the key issue of the Northern Irish border, as first reported on Tuesday morning by The Telegraph.

Negotiators are now scrambling to get a draft text ready in order for Michel Barnier, the EU’s chief negotiator, to brief EU ambassadors at their pre-summit meeting on Wednesday.

The pound surged as reports of an impending deal circulated in Brussels, climbing as much as 1.2% to hit the highest level in nearly four months.

The deal in understood to include key concessions from Boris Johnson on customs checks in the Irish Sea, although the precise nature of the mechanism has yet to be unveiled.

Senior EU sources, however, said that Mr Barnier had been adamant that any solution needed to be “operable”, pointing analysts to largely existing solutions of the kind first proposed by the EU in February 2018 but rejected by Theresa May.

Mr Johnson has said that any deal must allow all the UK to take advantage of the benefits of post-Brexit trade deals, leading to speculation that a system of rebates might be put in place to allow Northern Ireland to benefit if it remains behind a customs border.

The deal, EU sources said, is expected to contain a consent mechanism that will “delegate responsibility” to the Northern Irish political parties collectively as to whether they remain in the special arrangement with the EU or not.

One EU source said that the vote would take place “every four to six years”. This creates the theoretical risk that Northern Ireland could vote to restore a hard border, but removes the DUP veto and any suggestion that Ulster could be trapped in the deal.

Government sources in London urged caution, however, suggesting that the rising tide of optimism in Brussels was not mirrored in London where sources emphasised there was ""still a long way to go" before a deal could be signed off.

Earlier, the EU indicated that it would call another emergency Brexit summit before Hallowe'en, if negotiators miss a deadline of midnight on Tuesday to agree a replacement for the Irish backstop.

EU leaders are prepared to meet again to finalise a deal or agree an extension to the Oct 31 deadline after Thursday’s European Council summit, as the prospects of a no-deal Brexit receded. Sources said the new summit could be held on Oct 28 or 29.

Mr Barnier earlier said a deal was “still possible” this week but warned the agreement would be difficult and “more and more difficult to be frank”.

“Obviously any agreement must work for everyone, the whole of the UK and the whole of the EU. Let me add that it is also high time to turn good intentions into a legal text,” he added.