The UK stock market nosedived on Tuesday as the UK government appears to be politically ready for a no-deal Brexit.

The President of the European Council, Donald Tusk, took to Twitter to publicly asked the British prime minister Boris Johnson to stop playing a “stupid blame game” over Brexit.

The statement came after Downing Street press leak suggested that a deal with the EU was “overwhelmingly unlikely” because German Chancellor Angela Merkel had made unacceptable demands.

The Downing Street source said that the German Chancellor insists that Northern Ireland remains in the customs union, which Boris Johnson considers a deal-breaker. The UK’s chief Brexit negotiator, David Frost, continues to meet EU counterparts in Brussels, but No. 10 signals that talks “are close to breaking down,” while accusing Brussels of torpedoing the Good Friday Agreement.

The leak from No. 10 comes days before the October 18 European Summit and weeks before the October 31 Brexit deadline. Despite a law requiring him to seek a delay of Article 50 implementation if there is no deal by October 19, Johnson keeps reiterating that he will not.

The German Chancellery would neither confirm nor deny the No.10 leak, but the Bundestag’s foreign affairs committee chair, Norbert Rottgen, tweeted that there is “no new German position.”

The Irish foreign minister, Simon Coveney, said a deal was still possible but “not any at cost,” while prime minister Leo Varadkar told the Irish broadcaster RTE that “big gaps” remain between the two sides; Varadkar will meet Johnson later this week.

As a result of the apparent political deadlock, firms that are primarily focused on the British market and listed in the London Stock Exchange suffered on Tuesday: from Tesco supermarket and airlines to house building societies, there was a nosedive. More dramatically, the Hong Kong Stock Exchange dropped its bid to take over the LSE, although it is unclear whether this was a matter related to Brexit or just bad timing; the LSE stock value lost 5,8%, in what was the steepest one-day decline since the 2016 Brexit referendum.

Johnson’s proposal envisages Northern Ireland leave the EU’s customs union alongside the rest of the UK at the start of 2021. Northern Ireland would continue to apply EU legislation relating to agricultural and other products unless the Northern Ireland Assembly vetoes such a decision.

As the UK now braces for no-deal, the government is preparing for confrontation, with a source in Downing Street reported by the Conservative Spectator suggesting that no-deal would also have implications for Britain’s defence relationship to EU countries.

Ireland too is preparing for no-deal. The government presented a no-deal Brexit budget for 2020 on Tuesday, pledging a €1.2bn package to keep the companies that suffer to stay afloat if the UK leaves the EU without a transition period. The Irish finance ministry forecasts that GDP could plunge from 5.5% growth in 2019 to just 0.7% in 2020 in a no-deal Brexit scenario.

“The EU position has not changed, we want a deal, we are working for a deal with the United Kingdom and under no circumstances will we accept that the EU wants to do harm the Good Friday Agreement. The purpose of our work is to protect it,” Commission spokeswoman Mina Andreeva said on Tuesday.