The EU’s chief Brexit negotiator has warned Theresa May that trade barriers are “unavoidable” if she carries out her plan to leave the customs union.

Michel Barnier also told the Prime Minister that “the time has come to make a choice” – reflecting growing Brussels frustration with the UK Government’s failure to set out its aims clearly.

After meeting Mrs May and David Davis, the Brexit Secretary, in Downing Street, Mr Barnier said the EU “need clarity” on the UK’s hopes for a post-Brexit trading partnership.

And, on No 10’s insistence that it will not be part of any customs union, he warned: “Without the customs union, and outside the single market, barriers to trade in goods and services are unavoidable. The time has come to make a choice.”

Mr Barnier also appeared to rebuff Mrs May’s apparent attempt to deny full settlement rights to EU citizens who arrive in the UK after Brexit day but before the end of a transition period.

That dispute threatens the UK Government’s hope of nailing down the transition agreement in the coming weeks, with businesses warning they will otherwise shift investment overseas.

“The conditions are very clear. Everyone has to play by the same rules in the transition,” Mr Barnier said, at a brief joint press conference alongside Mr Davis.

Brexit: the deciders Show all 8 1 /8 Brexit: the deciders Brexit: the deciders European Union's chief Brexit negotiator, Michel Barnier Getty Brexit: the deciders French President Emmanuel Macron Getty Brexit: the deciders German Chancellor Angela Merkel Reuters Brexit: the deciders Commission President Jean-Claude Juncker EPA Brexit: the deciders The European Parliament's chief Brexit negotiator Guy Verhofstadt Getty Brexit: the deciders Britain's Prime Minister Theresa May Getty Images Brexit: the deciders Britain's Chancellor of the Exchequer, Philip Hammond PA Brexit: the deciders After the first and second appointed Brexit secretaries resigned (David Davis and Dominic Raab respectively), Stephen Barclay is currently heading up the position PA

The face-to-face talks – the first to be staged in London – followed the overnight announcement from No 10 that Britain would not be part of any customs union with the EU.

The move appeared to be an attempt to calm the anger of Brexiteer Conservative MPs threatening a leadership bid if Mrs May seeks to keep close economic ties.

At stake, believe hard Brexit supporters, is the prize of being able to strike free trade deals with non-EU countries, which cannot be done from within the customs union.

However, business leaders fear an explosion in red tape and gridlock at Britain’s borders if goods can no longer flow freely to and from the continent.

In an unwelcome message to them, Mr Barnier added: “The certainty about this transition will only come with the ratification of the withdrawal agreement.” That will not happen until the end of the year.

But Mr Davis claimed it was “perfectly clear” what the UK wanted, saying: “We have already published a great deal about our proposals, in terms of what the customs arrangements will be, what the other arrangements will be with respect to being outside the union.

“We have said in terms we want a comprehensive free trade agreement and we want a customs agreement and to make that as frictionless as possible, to make as much trade as currently exists as free as possible, while still giving ourselves the opportunity to make free trade deals with the rest of the world.”

The get-together came ahead of a crunch meeting of the inner Cabinet on Wednesday and Thursday, to thrash out – in theory – the Government’s aims for the future partnership.

Downing Street has left open hopes for a “customs arrangement”, which would still allow the Government to strike trade deals outside the EU – even if only in services.

Senior Tories who favour a customs union appear relaxed about the latest twist, believing the new arrangement will take many years to develop.