EU chief negotiator Michel Barnier has said that a transition deal for the UK is “not a given”.

He also warned that “time is very short” for the UK to make up its mind on any future relationship with the EU.

Speaking to journalists in Brussels, Barnier said: “I’m surprised by these disagreements and if they persist, a transition is not a given.

“If this disagreement were to persist there will undoubtedly be a problem. I hope we will be able to resolve this disagreement in the next round.”

When asked about a threat to the transition deal, Barnier responded: “I’m not going to talk about a threat. I wasn’t talking about a threat, we have to bear in mind what the UK has said. I have some problems understanding the position. They themselves asked for this transition period.”

Since Barnier’s speech the pound has fallen sharply.

Barnier also set out the EU’s stance on the Northern Ireland question, which is a potential flashpoint in negotiations. He gave Theresa May’s government three options:

1) The UK leaves the single market and customs union. That would make border checks “unavoidable”, he said.

2) The UK follows through on a promise to propose a “specific solution”. “We are waiting for such solutions,” he said.

3) Northern Ireland retains full regulatory alignment.

The speech comes after a leaked EU draft withdrawal agreement on Wednesday said Northern Ireland would effectively remain inside the single market and customs union. The document also said the EU may be able to sanction Britain during any transition period. Brexit secretary David Davis called the leak “discourteous” and said it had not been published “in good faith”.

Barnier refused to discuss Davis’s reaction to the leak, saying he would be “drawn in” by talk of courteous or discourteous language. He insisted the Brexit Secretary had always been objective and calm.

This week, Theresa May said her government would be “robust” in the face of EU demands. She added: “As I have said right from the very beginning, we will hear noises off and all sorts of things being said about positions…

“But what matters is the position that we take in the negotiations as we sit down to negotiate the best deal.”

Both sides want to reach an agreement in March to move to trade negotiations.