Rafael Benítez's prognosis on Liverpool was as sombre as his mood yesterday as he described their defeat at Middlesbrough as a fatal error in the title race and revealed that Fernando Torres may not be fit for the Champions League return against Real Madrid.

The Liverpool manager remained downcast after the dispiriting display and result at the Riverside and, although he will not concede the title is beyond Anfield until arithmetic confirms it, he left no doubt as to the ramifications of Saturday's 2–0 defeat on Teesside. "We knew we could not lose any games or draw any more games if we wanted to fight for the title," he admitted.

Benítez's outlook has not been helped by injury to Torres and the defenders Daniel Agger and Alvaro Arbeloa, all of whom miss tonight's match against Sunderland at Anfield. They remain doubtful for the Champions League second leg against Real Madrid a week tonight and their absence had such a debilitating effect on Liverpool's threat and balance against Middlesbrough.

"We will have to wait for Torres, Agger and Arbeloa and see how they progress for Real Madrid," said Benítez, who lost his leading striker to a twisted ankle at the Bernabéu last week. "It is not clear [if they can face Real] at the moment."

Now seven points adrift of Manchester United but having played a game more, Benítez admitted his first task tonight will be to lift the spirits of a club that, according to Sir Alex Ferguson, was involved in a two-horse race for the title just a fortnight ago. "When you are in a position where you are fighting at the top of the table and you have a defeat, then it's normal that the mood is not the best," said the Liverpool manager. "You can have five minutes of being disappointed, then you start again preparing for the next game. If we start well against Sunderland and create some chances then I think everybody will be behind the players. The players have to show the supporters their character on the pitch."

Benítez admitted he never anticipated that Liverpool would falter so badly and so quickly from a position of strength in the Premier League. "We were in a really good position for such a long time, the best in my five years here, so what has happened has come as a surprise and disappointment," he said. However, he remains adamant that Liverpool can end United's dominance of the Premier League under his stewardship.

"The cycle will be broken," he said. "We have confidence we can stay closer at the top of the table. We have made some ­mistakes this season, such as ­losing at Middlesbrough, a game we would ­normally have to win. We have to improve on the pitch. Clearly one thing is to do better in front of goal but there is not just one reason why we aren't closer to the top."

The Liverpool manager also revealed his protracted contract negotiations are likely to drag on, with no date set for the next round of talks between his advisers and lawyers acting for the club's co-owners, Tom Hicks and George Gillett. "There will be communications in the next few days and we will decide then but we don't have a date," Benítez said. "It could be in a few days or maybe in a few weeks."