Britain and the EU are “closing in” on an agreement on the terms of the UK’s withdrawal and their future relations, Brexit Secretary Dominic Rabb has said.

Mr Raab had an “extended” phone call on Friday with the EU’s chief negotiator Michel Barnier to review progress in the Brexit talks.

He said that while there were still issues which needed to be resolved, discussions were taking place in the “right spirit” and that they would have further talks after EU leaders meet next week for an informal summit in Salzburg.

“While there remain some substantive differences we need to resolve, it is clear our teams are closing in on workable solutions to the outstanding issues in the withdrawal agreement, and are having productive discussions in the right spirit on the future relationship,” Mr Raab said.

“We reiterated our willingness to devote the necessary time and energy to bring these negotiations to a successful conclusion.”

Mr Barnier was more cautious, saying that while they had a “useful dialogue”, there were still “substantive differences” – including over the Irish border, and protections for regional speciality food products known as “geographical indications”.

He said they were also working to find “common ground” on the relations after Britain has left.

Their comments came after Mr Raab warned on Thursday that Britain could withhold some of the £39 billion “divorce bill” agreed in December if the there was no overall agreement.

Earlier, Mr Barnier had delivered an upbeat assessment suggesting a deal could be tied up within six to eight weeks, in time for agreement at a special leaders’ summit in November.

The potential consequences of a no-deal Brexit were spelled out by Bank of England governor Mark Carney at a special meeting of the Cabinet when he warned ministers of a 35% crash in house prices over three years in a worst case scenario.

Speaking in Dublin on Friday, Mr Carney said the Bank had used its “stress test” to ensure UK banks could continue to function in the event of a “disorderly” Brexit.

“The Bank of England is well-prepared for whatever path the economy takes, including a wide range of potential Brexit outcomes,” he said.

“Our job, after all, is not to hope for the best but to plan for the worst.”