Jeremy Corbyn has warned Philip Hammond risks igniting a “trade war” with Europe over his strategy for Britain’s exit from the European Union.

Following speculation Theresa May will announce at a major speech on Tuesday that Britain is prepared to leave the single market and the customs union, the Labour leader warned Ms May was pursuing an “extremely risky” strategy.

Speaking on the BBC’s Andrew Marr Show, Mr Corbyn said the Prime Minister “seems to be heading in the direction of a bargain-basement economy on the shores of Europe, where we have low levels of corporate taxation. We will lose access to half our export market.”

He also sharply criticised a warning by the Chancellor that the Government could retaliate by slashing corporation tax if UK firms faced new tariff barriers outside the EU. In an interview with the German newspaper Welt am Sonntag, Mr Hammond admitted that if Britain leaves the EU and loses access to the European market, it could suffer “economic damage”.

Mr Corbyn added: “He appears to making some sort of threat to the European community saying, ‘Well, if you don’t give us exactly what we want, we’re going to become this strange entity on the shores of Europe’.

“It seems to me a recipe for some kind of trade war with Europe in the future. That doesn’t really seem to me a very sensible way forward.”

It comes after a source familiar with the plans, told The Sunday Telegraph that the Prime Minister has “gone for the full works” in a speech due to be delivered on Tuesday.

“People will know when she said ‘Brexit means Brexit’, she really meant it,” they added.

Mr Corbyn confirmed that Labour would not seek to block the Government from triggering Article 50 – marking the start of the formal two-year negotiating period – but indicated it could seek to ally with MPs from other parties in the Commons to influence what shape Brexit takes.

“The Brexit vote isn’t a one-off thing. It has got to be agreed by 27 national parliaments, it has got to be agreed by the European Parliament. There is quite a long way to go on this,” he said.

Elsewhere in the interview, Mr Corbyn signalled that Labour would champion an elected House of Lords in the party’s next manifesto. “We have a House of Lords, which is dominated by a small number of people from London and the South-east,” he said.

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Mr Corbyn, who also denied he would be “toast” if the party lost the upcoming by-elections in Stoke and Copeland, added: “I would want to see an elected second chamber that is representative of all regions and nations of the United Kingdom.”

“It’s not a new concept – it’s been in debate for a very long time.

Mr Corbyn said he “would like us to get to the position” where the policy is included in Labour’s next general election manifesto. “Obviously the debate is in the party”. The Labour leader added he would set up a constitutional convention in the build up to the next general election.

The party’s 2015 manifesto said: “Labour is committed to replacing the House of Lords with an elected Senate of the Nations and Regions, to represent every part of the United Kingdom, and improve the democratic legitimacy of the second chamber.”