Officials say too soon to talk of progress in Brexit talks

U.K. and European Union negotiators are still locked in talks in Brussels, with no decision yet on whether they will be able to make progress toward a trade deal, three people familiar with the discussions said. The pound dropped.

Reports that the two sides are ready to enter the final stage of negotiations, the so-called tunnel, are too optimistic at this point, the people said. Differences remain on the two key issues that have plagued negotiations since the start: the U.K.’s state-aid policy and what access EU boats will have to British waters after Brexit, the officials said.

The U.K. wants to enter the crucial tunnel stage at the end of this week so that the two sides can start drafting the final text. The EU says it won’t do that until it is certain that both sides have made enough compromises and a deal is within striking distance.

One of the people said the two sides have made some progress in the negotiating round this week, but it is still touch and go whether they have made sufficient headway in time to make a positive decision on entering the tunnel this week. The EU’s chief negotiator, Michel Barnier, is scheduled to meet his British opposite number, David Frost, on Friday morning.

Pound Swings Amid Brexit Headlines in Sign of Volatility to Come

The U.K. is hoping to enter the final stage of negotiations next week and so allow a deal to be struck by mid-October, meeting the deadline set by Prime Minister Boris Johnson. The EU, however, is prepared to let negotiations to drift through into October or even November.

Negotiations have been complicated by Johnson’s threat to break international law by rewriting parts of the Brexit Withdrawal Agreement. Earlier on Thursday, the EU began the first stage of legal proceedings against the U.K., accusing the country of a breach of good faith.

While officials are trying to keep that issue at arms length from Frost and Barnier’s negotiations, the EU is pressing the U.K. to commit to a clear, legally binding mechanism for resolving any disputes between the two sides, particularly on the issue of state aid, officials said last week.

“I think we are making a little bit too much out of it,” Dutch Prime Minister Mark Rutte said of the legal action on the sidelines of an EU summit. “It’s a logical administrative next step, given this particular law has now passed so many stages in the U.K. parliament,” he added. “It should not too much influence the negotiations with the U.K.”