No-deal Brexit threatens to set UK back 10 years, warns Philip Hammond

Chancellor's comments spark fresh clash with Theresa May - just hours after she claimed 'our best days are ahead of us'

Philip Hammond has warned that a no-deal Brexit threatens to set Britain back 10 years, in his starkest warning yet about the damage to the economy.

Embarrassingly for Theresa May, the comments came after she claimed “our best days are ahead of us” – even while insisting that crashing out of the EU without an agreement remains an option.

But the Chancellor said that striking a deal was essential to “lock in the economic progress that we have made” repairing the economy since the great crash a decade ago.

“As we leave the EU we must secure a close and enduring partnership with our European neighbours and we must heed the clear warnings of the IMF [International Monetary Fund] and others of the significant costs not reaching a deal with the EU will have for British jobs and British prosperity,” he said.

“Despite the contingency actions we are taking, leaving without a deal would put at risk the substantial progress the British people have made over the last 10 years.”

Ms May’s spokesman gave a frosty response to Mr Hammond’s latest warning, saying: “The prime minister said very clearly that our best days are ahead of us and we will have plans to succeed whatever the scenario.”

John McDonnell, Labour’s Shadow Chancellor, urged Mr Hammond to speak up and make clear to the prime minister that he would not accept a no-deal Brexit.

“I call on the Chancellor to show some leadership and make it clear to his colleagues that he will not accept a no deal Brexit and the damage it risks doing to jobs, wages and living standards in this country”,” he said.

Mr Hammond was responding to an annual report by the IMF which warned that Britain would be worse off under every possible post-Brexit option.

“Whatever the deal is will not be as good as it is at the moment,” said Christine Lagarde, the IMF’s managing director.

“Let me be clear, compared with today’s smooth single market, all the likely Brexit scenarios will have costs for the economy and to a lesser extent as well for the EU.

“The larger the impediments to trade in the new relationship, the costlier it will be,” she said. This should be fairly obvious - but it seems that sometimes it is not.”

In his speech, Mr Hammond insisted he was “confident” that the UK and the EU would reach an agreement this autumn, adding: “A no-deal scenario remains unlikely but it is not impossible.”

However, his comments are certain to enrage pro-Brexit Tories who have already accused him of trying to recreate the so-called “project fear” campaign during the Brexit referendum.

Mr Hammond has stood by Treasury predictions that a no-deal Brexit will deliver a 7.7 per cent hit to GDP and blow an £80bn hole in the public finances.

The Treasury has also calculated a Canada-style free trade agreement would cut growth cut by 5 per cent over 15 years, while staying inside the EU single market would reduce output by 2 per cent.

Controversially, No 10 has suggested MPs will be denied a full analysis of the damage from crashing out when the “meaningful vote” on any deal Ms May strikes takes place.