Johnson's dinner with European Commission President touted as last chance for Brexit trade deal

British Prime Minister Boris Johnson heads to Brussels on Wednesday for dinner with European Commission President Ursula von der Leyen in a last-ditch attempt to avoid a tumultuous no-trade deal Brexit in three weeks' time.

With growing fears of a chaotic no-deal finale to the five-year Brexit crisis when the United Kingdom finally leaves the EU's orbit on Dec. 31, the dinner is being cast as a last chance to unlock the stalled trade talks.

"We must be realistic that an agreement may not be possible as we will not compromise on reclaiming UK sovereignty," a British government source said.

"It's clear that some political impetus will be required for the talks to make any more progress," the source said, adding that if progress was made then negotiators Michel Barnier and David Frost could resume talks.

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Johnson's Brexit supremo, Michael Gove, refused on Wednesday to give odds of a deal but said the EU would have to move if there was to be an agreement. He had previously put the odds of securing a trade deal at 66%.

"The EU has to move," Gove said, adding that a deal would only be possible if the bloc accepted the United Kingdom was now a sovereign nation.

Failure to secure a deal would snarl borders, shock financial markets and sow chaos through the delicate supply chains that thread across Europe and beyond just as the world faces the vast economic cost of the Covid-19 pandemic.

An acrimonious no-trade deal exit would, in the short term, split the West, slice off a chunk of both British and EU gross domestic product while making trade much more expensive for businesses trading everything from car parts to Camembert.

Sterling was flat against the dollar around 1.3369, after three straight days of losses and stands around 1% off 2-1/2 year highs hit at the end of last week.

But overnight implied volatility -- a measure of expected price swings -- rose to a new 8-1/2 month high of close to 25%.

EU chief Brexit negotiator Barnier said on Tuesday he believed a 'no-deal' split in ties with Britain at the end of the year was now more likely than agreement on a trade pact, sources in the bloc said.

Read | As Brexit talks stall, Boris Johnson offers EU an olive branch

A diplomat and an official in Brussels, speaking under condition of anonymity, said Barnier made the remark at a meeting with the 27 national European affairs ministers and added that it was time for the bloc to update its no-deal contingency plans.

Britain said on Tuesday it would drop clauses in draft domestic legislation that breached the Brexit Withdrawal Agreement after it clinched a deal with the EU over how to manage the Ireland-Northern Ireland border.

Gove, Johnson's minister in charge of negotiations with the EU over Northern Ireland, said the deal on Northern Ireland cleared a path towards a trade deal.

"There is a smoother glide path towards a possible deal," Gove said.

"I hope that we will secure a free trade agreement," Gove told Sky, adding that if a deal was not done finance minister Rishi Sunak would take steps to ensure British businesses were competitive.

Irish Foreign Minister Simon Coveney said he believed Britain wanted to find a way to strike a deal, citing conversations with the London government.

"I believe they do want to try to find a way of getting a deal," Coveney told Irish national broadcaster RTE.