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Hammond's warning that no-deal Brexit risks reversing Britain's economic recovery sparks fresh tensions with May

An extraordinary warning that a no-deal Brexit risks wiping out Britain’s 10-year recovery from the economic crash has sparked fresh tensions between Philip Hammond and Theresa May.

The chancellor sided with the International Monetary Fund (IMF) as it warned of “dire consequences” from crashing out of the EU, saying the government must heed the advice to protect jobs and prosperity.

“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,” Mr Hammond said.

Moments earlier, Christine Lagarde, the IMF’s managing director, had made clear its view that Britain would be worse off under every possible post-Brexit option.

On a no-deal departure, she said: “If that happened there would be dire consequences. It would inevitably have consequences in terms of reduced growth, an increase in the [budget] deficit and a depreciation of the currency.”

Embarrassingly for the prime minister, the comments came after she claimed “our best days are ahead of us” – even while insisting that the UK would leave without an agreement if her Chequers plan was rejected.

Mr Hammond’s intervention prompted a call from Labour for him to break ranks by making clear he would not accept a no-deal Brexit and the “damage” it would bring.

In a further blow, Jaguar Land Rover – which has publicly attacked the government’s Brexit stance – put its workers on a three-day week until Christmas, due to “continuing headwinds”.

And Northern Ireland’s most senior civil servant warned that trade would be “impossible” for some of its firms if the bureaucracy from a no-deal departure became a reality.

Today, the Commons Brexit committee warns the prime minister has failed to set out a solution to prevent a hard border in Ireland and that “time is now running out”.

Mr Hammond issued his most outspoken broadside against crashing out of the EU, when he said a deal was essential to “lock in the economic progress that we have made” repairing the economy since the 2008 crash.

“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 and others of the significant costs not reaching a deal with the EU will have for British jobs and British prosperity,” he said.

John McDonnell, Labour’s shadow chancellor, seized on the comments, saying: “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.”

Ms May’s spokesman gave a frosty response, 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.”

The chancellor was responding to an annual report by the IMF that warned 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.”

In its report, the Exiting the European Union Committee stamped on suggestions that an agreement with the EU on the Irish border is close, warning the UK has still not put forward a workable proposal.

It also argued a plan B will be needed if the EU continues to reject the Chequers proposals – urging the prime minister to keep single market and customs union membership on the table.

Hilary Benn, the committee’s Labour chair, said: “The government has not yet set out how it will maintain an open border without imposing customs and regulatory checks. It must now do so.”

Speaking in Brussels, David Sterling, the head of the Northern Ireland Civil Service, told an event in Brussels that it had “deep concerns” about a “chaotic exit from the EU”.

“Costs for our businesses could significantly increase or create what might just [make it] impossible for many firms, particularly in our agri-food supply chains, to trade normally,” he said.

But Ms May, asked by the BBC if her policy was “my deal or no deal”, said: “I believe we will get a good deal. We will bring that back from the EU negotiations and put that to parliament. I think that the alternative to that will be not having a deal.”