UPDATE 2-British stocks end lower as Brexit talks hit a snag

* UK plans for Brexit treaty breach

* Supermarket owner Morrisons drops on weak earnings

* British Airways owner slips on launching rights issue

* Games Workshop tops midcap index on strong outlook (Adds details, updates to market close)

By Shashank Nayar and Ambar Warrick

Sept 10 (Reuters) - British stock indexes closed lower on Thursday as disagreements over Brexit terms between Prime Minister Boris Johnson's government and the European Union sowed concern about a messy British departure.

The mid-cap FTSE 250 .FTMC , considered a barometer of Brexit sentiment, fell 0.1% with furnishing retailer Dunelm DNLM.L dragging the most on a decline in its annual profit. domestically-focussed index was still reeling from losses after surging COVID-19 cases sparked new curbs on social activity in England, hitting shares of restaurant and pub firms.

Talks between Britain and the European Union on the relationship after the Brexit transition period concludes at the end of this year, which came to the forefront this week, hit a snag after Johnson's government refused to scrap a plan that could break their exit treaty. blue-chip FTSE 100 index .FTSE shed 0.2% as gains in consumer discretionary stocks were offset by losses in healthcare and consumer staples.

"Markets are moving with heavy caution and we also see investors pulling back on some export-heavy names until they see concrete developments on the Brexit front," said Ronald Kaloyan, head of European equity strategy at SocGen.

A Reuters poll this week found chances of the two sides failing to reach a trade deal have jumped to 40%. group Morrisons MRW.L fell 4.6% even as it said it expected profit growth for the full year, while table-top game maker Games Workshop Group GAW.L topped the midcap index after it flagged a stronger quarterly profit. Airways-owner IAG ICAG.L closed flat as it launched a heavily discounted rights issue to raise 2.74 billion euros ($3.2 billion). .FTNMX3720 rose 1.2% after data showed house prices hit a four-year high in August, although the survey also sent a warning signal that the recovery could run out of steam.