Michel Barnier, the European Union’s chief Brexit negotiator, today warned that talks over a UK-EU transition period could fail after exposing deep divisions between the UK and the EU over freedom of movement.

“If these disagreements persist, the transition is not a given. Time is short, very short. We haven't a minute to lose if we want to succeed," he told reporters at Brussels press conference where he demanded Britain set out its vision for a future UK-EU relationship.

Mr Barnier’s comments will spook British and foreign businesses, which have demanded certainty over the status of the UK after the 29 March 2019 deadline.

The pound fell on the currency markets as he threw into doubt the deal to temporarily preserve Britain’s membership of the single market and customs union for about two years after Brexit.

During this time the EU wants Britain to observe all new and existing EU law and recognise the supremacy of the European Court of Justice, while being stripped of its voting rights and representation in the bloc.

"I am surprised by these disagreements. The EU positions are very logical, I think," he said. "The UK has to accept all the rules and obligations until the end of transition. This is logical. It must also accept the consequences of leaving the EU's institutions and policies."