The U.K. may need to wait until June before it begins discussing its exit from the European Union, giving it less time to strike a deal.
Prime Minister Theresa May is set to trigger Article 50 of the Lisbon Treaty – which officially informs its European partners that the U.K. is ready to negotiate Brexit – by the end of this month. It is up to European capitals to take the next step and it could take until June to kick off negotiations.
A European official who asked to remain anonymous due to the sensitive nature of the process explained that once Article 50 is triggered, the 27 leaders will convene at a summit to jointly adopt their guidelines for the negotiations.
Bearing in mind that it takes up to four weeks to prepare a summit, the meeting could happen in late April or even at the start of May.
The third step of the process involves the European Commission, the EU's executive arm, which has to prepare the document outlining what the EU wants and doesn't want from this process. The European Commission has said that this should be quick, happening "immediately" after the summit.
Lastly, foreign ministers gather to decide and announce that the negotiations are open from the European side too.
At the moment, foreign ministers are scheduled to meet on May 16th and June 20th.
The first date could be tight if the U.K. delays notification, which makes June 20th a more likely date for the start of the talks. Foreign ministers could alternatively agree to have an extraordinary meeting before June 20th to begin negotiations with London.
The main problem is that once the U.K. triggers Article 50, a race against time begins. EU law states that there is a two-year deadline to agree on how a member state wants to leave the Union and that clock begins as soon as Prime Minister May notifies Europe.
Given the complexity of the process of leaving the EU, if London and Brussels only begin addressing it in June, the chances that they will reach an agreement by March 2019 are slim.
Prime Minister May has said that a no deal is better than a bad deal, hinting that she would rather exit the EU without any agreement.
Officials from both the U.K. government and European institutions have said that they will work towards getting an agreement within two years.
However, both seem to be preparing for the eventuality of a no deal.
David Davis, the U.K.'s main negotiator, told the BBC last Sunday: "The simple truth is we have been planning for the contingency - all the various outcomes, all the possible outcomes of the negotiations.
"One of the reasons we don't talk about the contingency plan too much is that we don't want people to think 'Oh, this is what we're trying to do,'" he said, adding that such back up plans are unlikely to be used.
A second European official, who also asked to remain anonymous, told CNBC that the EU's aim is to reach an agreement with the U.K., but in the "hypothetical scenario" of a no deal, the EU would "be prepared."
Speaking in parliament on Wednesday, Brexit Secretary Davis said that the U.K. hasn't made any economic impact assessment of a no deal, the Financial Times reported.
President Donald Tusk of the European Council said Wednesday morning on Twitter: "We will not be intimidated by threats that no Brexit deal is good for UK and bad for EU. No deal is bad for everyone, above all for UK."
A no deal would mean that the U.K. would break with the EU without clear clues of what would happen to the City of London, for example. Trade between both could still take place but under World Trade Organization rules, which would mean higher costs for businesses in both the U.K. and the EU.