Britain could suffer from having no access to the European Union’s markets after Brexit and "will not take it lying down", Philip Hammond has admitted.

The Chancellor admitted in an interview with a German magazine that the UK "could suffer from economic damage at least in the short-term” if it is left with no access to the EU.

But he suggested that Britain could cut taxes to encourage companies to move to the UK if it were shut out from trading with the EU.

The comments prompted Labour leader Jeremy Corbyn to claim Theresa May, the Prime Minister, is preparing to launch a "trade war" with Europe if she does not get her way over Brexit.

In the interview with Germany’s Welt am Sonntag newspaper, Mr Hammond said that the Government will do “whatever we have to” to ensure Britain stays competitive if it is shut out of the EU single market after Brexit.