EU and Britain making 'very limited' progress in talks - Merkel

German Chancellor Angela Merkel attends a session of the lower house of parliament Bundestag, in Berlin

BERLIN (Reuters) - The European Union and Britain have made "very limited" progress in negotiations about their future relationship, German Chancellor Angela Merkel said on Wednesday, adding there was still a possibility that no deal would be agreed.

"Progress in talks is, to put it cautiously, very limited," Merkel told parliament during a Q&A session.

Germany took over the six-month rotating presidency of the EU on Wednesday.

"We have agreed with Britain to speed up the talks in order to seal a deal in the autumn that must be ratified by the end of the year," she said. But Germany and the EU "must be prepared ... for the possibility that a deal doesn't materialise".

Britain left the bloc on Jan. 31. A transition period, during which Britain remains in the EU single market and customs union, expires on Dec. 31 and pressure is mounting to agree a free trade deal before then.

With the two sides still far apart, a round of "intensified negotiations" is scheduled for this week.

The British prime minister's spokesman said a deal was still possible but Britain was prepared for either scenario.

"We believe that there is a free trade agreement to be reached but we have also been very clear that we will be prepared for either eventuality at the end of the year, whether that be a free trade agreement or whether that be having a trading relationship based on the same terms that Australia currently has," the spokesman told reporters.


(Additional reporting by Elizabeth Piper in London; Reporting by Joseph Nasr; Editing by Maria Sheahan, Madeline Chambers and Giles Elgood)