Downing Street has raised hopes that progress is being made towards a Brexit trade agreement, after branding no deal a “possible” and “potential” outcome rather than the “most likely”.

Boris Johnson’s official spokesperson refused to repeat the prime minister’s assertion that no deal is now “very, very likely” or the “most likely” outcome of talks.

Johnson on Sunday agreed with Brussels to extend negotiations to try and strike a free trade deal and avoid the UK defaulting to World Trade Organisation terms for trade with the EU from January 1, which is predicted to be the most damaging outcome.

On Friday, the PM said no deal was “very, very likely”, but on Sunday would only say that “the most likely thing” was that the UK has “to get ready” for WTO terms.

On Monday, Johnson’s spokesperson hinted that progress was being made in the talks between UK chief negotiator Lord Frost and his EU counterpart Michel Barnier in Brussels.

“Obviously no deal is a possible outcome as the prime minister has said himself but we have been clear that we will continue to work and hope to reach a free trade agreement (FTA),” the spokesperson said.

Asked if no deal was the “most likely” outcome, the spokesperson said: “Obviously no deal is a potential outcome but the general point remains that we are still committed to trying to reach an FTA.”

Pressed again on whether no deal was now simply a “potential” but not the “most likely” outcome, they said: “We have been clear that no deal is an outcome that is possible and that we should be prepared for that, the prime minister has made that clear.”

It came as Barnier told diplomats from the bloc’s 27 member states that a deal is “still possible”.

For months the talks have been deadlocked on the issues of fishing rights and the “level playing field” to ensure that neither side can unfairly compete with the other on environmental standards, workers’ rights or state subsidies.

Barnier confirmed that those remain the main issues, telling reporters in Brussels “two conditions are not met yet”

But the other issue which has dogged the negotiations – the legal mechanisms to govern any deal – was not mentioned by Barnier, suggesting those difficulties may have been resolved.

Barnier said the “next few days” are important if a deal is to be in place for January 1.

“It is our responsibility to give the talks every chance of success,” he said.

“Never before has such a comprehensive agreement (trade, energy, fisheries, transport, police and judicial cooperation etc) been negotiated so transparently and in such little time.”

A spokesman for the grouping of EU ambassadors said there is “full support for the resilient and persistent” negotiating team led by Mr Barnier.

Downing Street has repeatedly ruled out negotiations continuing in 2021.

Optimism around the continuation of the talks on Monday was reflected in the currency markets.

“Sterling has rallied 1.2% to 1.3390 versus the US dollar as markets showed some relief that EU trade talks haven’t collapsed,” said Russ Mould, investment director at AJ Bell.