The House of Lords EU committee's report "Brexit: deal or no deal" said on Thursday Britain should consider extending membership of the European Union or set a later date for leaving to give the government longer to negotiate a trade deal.
"The overwhelming weight of evidence suggests that 'no deal' would be the worst possible outcome for the UK, in terms of the economy, security, the environment and citizens' rights," said Michael Jay, a member of the Lords EU committee and former head of Britain's diplomatic service.
Britain's Prime Minister Theresa May's hopes of progressing the Brexit talks collapsed at the last minute on Monday as her Northern Irish allies denounced a proposed offer on the border with Ireland.
May has found it difficult to come up with a formula that satisfies both EU member Ireland, which wants to avoid creation of a "hard" border, and Northern Ireland's DUP party, which says the British province must quit the EU on the same terms as the rest of the UK.
With the clock ticking down to the March 2019 exit date, the report says the biggest risk factor that there may be no trade deal is the shortage of time.
Despite scepticism in Brussels over the tight timetable, May and her chief negotiator David Davis have been clear they want to have a full post-Brexit free trade deal sealed by the time Britain leaves.
"While we support David Davis' ambition to secure a comprehensive agreement by 29 March 2019, almost nobody outside the Government thinks this will be possible," Jay said.
(Reporting by Andrew MacAskill; Editing by Mark Potter)