The UK, he added, must look at the “alternative” – which he suggested was Australia’s much-more limited set of agreements with the EU.
The PM said: “I have concluded we should get ready for 1 January with arrangements more like Australia’s based on simple principles of global free trade.
“So now is the time for our businesses to get ready, and for hauliers to get ready, and for travellers to get ready.
“For whatever reason it is clear from the summit that after 45 years of membership they are not willing – unless there is some fundamental change of approach – to offer this country the same terms as Canada.
“And so with high hearts and complete confidence we will prepare to embrace the alternative.”
The EU and Australia began discussions on a trade deal last year. At the moment, their trade is based on a much looser, decade-old partnership and is governed by World Trade Organization (WTO) rules.
This means there are tariffs, or taxes, on Australian goods sold into the EU and vice-versa.
The UK and EU had been hoping for a “zero-tariff” agreement to govern their trading relationship once the UK’s post-Brexit transition period ends in December.
Both sides are calling on each other to compromise on key issues, including fishing and limits on government subsidies to businesses.
In a document
issued during Thursday’s European Council summit, the EU said progress in key areas was currently “not sufficient”.
Labour’s Rachel Reeves urged the UK government to “step back from the brink” and “stop posturing”.
“Any tariffs or any delays at the border will make it harder for goods to flow freely, whether those are foods or medicines,” she said.
What if there’s no deal?
By remaining in the bloc’s single market and customs union, the UK has continued to follow EU trading rules during its post-Brexit transition period.
This 11-month period is due to end in December, and the UK has ruled out seeking an extension.
Formal talks began in March and continued throughout the pandemic, initially via video link before in-person discussions resumed over the summer.
If a deal is not done, the UK will trade with the EU according to the WTO’s default rules.
In this scenario, the EU would impose its tariffs on imported UK goods – pushing up the costs of items such as food and cars – and the UK would reciprocate.