The EU’s chief negotiator Michel Barnier says there has not been enough progress to move to the next stage of Brexit talks as the UK wants.
He said there was “new momentum” in the process but there was still “deadlock” over the so-called divorce bill and disagreements on citizens’ rights.
But “decisive progress is in our grasp within the next two months”, he added.
This week’s fifth round of talks are the final discussions before a crucial EU summit on 19 and 20 October.
The UK has been hoping EU leaders at the summit will decide enough progress has been made to open trade talks – but Mr Barnier said he would not recommending that “we start discussions on future relations” at the summit.
The UK is set to leave the European Union at the end of March 2019.
Both EU and UK teams have said the ball is in the other side’s court this week – implying that it is the other side that has to make the next concession.
The EU has said it wants “sufficient progress” on issues including a financial settlement, citizen’s rights and the Northern Ireland border with the Republic of Ireland before the talks move on to trade.
Earlier this week, European Council President Donald Tusk warned that if the current “slow pace” of negotiations continued the UK and the EU would “have to think about where we are heading”.
He suggested that the green light to begin talks about a post-Brexit trade deal would not come until December at the earliest.
Last month Prime Minister Theresa May used a speech in Florence to set out proposals for a two-year transition period after the UK leaves the EU in March 2019, in a bid to ease the deadlock.
Mr Davis has since said “decisive steps forward” have been made – although Mr Barnier has said there are still “big gaps” between the two sides on some issues.
Conservative MP Kwasi Kwarteng, Parliamentary aide to Chancellor Philip Hammond, played down reports of a cabinet row over whether money should be spent now on preparing for Britain’s exit from the EU without a trade deal.
He told BBC Radio 4’s Today programme there were “slight differences of opinion” but the government is “going to be prepared for every eventuality”.
Labour’s Hilary Benn, chairman of the Commons Brexit committee, said it would be “a disaster for Britain if we ended up with no deal” and talk of the UK being relaxed about that “I don’t think convinces anyone”.
He urged ministers to stop arguing amongst themselves because the “clock is ticking”.
“All the signs coming from Brussels are that when the European Council meets, it will say, I’m sorry there hasn’t been enough progress,” he added.