Tory infighting erupts after Hammond's no-deal Brexit comments spark anger among Eurosceptics in party

'The Treasury's Brexit panic means you can no longer trust the Treasury's forecasts' says one Conservative MP

Tory infighting has erupted again as Conservative Brexiteers accused Philip Hammond of launching another “dodgy Project Fear” with warnings over the economic impact of a no-deal Brexit.

In a letter published on Thursday, the chancellor reiterated estimates in a government analysis that borrowing could be £80bn higher if the UK crashes out of the bloc and GDP could fall by 10 per cent.

But his remarks came just hours after his cabinet colleague and Brexit secretary, Dominic Raab, attempted to reassure the public over a disorderly exit and cited “opportunities” that could arise.

Dismissing the chancellor’s warning on BBC Newsnight, the Eurosceptic Tory MP Jacob Rees-Mogg said: “I think a free trade deal can be achieved, but that leaving on WTO terms is not as absurdly frightening as the chancellor of the Exchequer thinks it may be.

“The Treasury’s Brexit panic means you can no longer trust the Treasury’s forecasts.”

Marcus Fysh, a second Tory MP, referred to the Treasury’s previous “dubious” forecasts before adding that the chancellor seemed “determined to wheel them out again for yet another instalment of dodgy project fear”.

A government source also told the Daily Telegraph: “This was a deliberate intervention by Philip, he knew exactly what he was doing.”

Pro-EU campaigners described the contents of the letter as a “Brexit bazooka” while John McDonnell, the shadow chancellor, said Mr Hammond ad threw a “hand grenade” into the debate over a no-deal scenario.

But the Cabinet Office minister, David Lidington, defended the chancellor, claiming the letter published on Thursday said “nothing new” and that Mr Hammond was “absolutely committed” to the prime minister’s Chequers blueprint for Brexit.

“This is provisional analysis that the Treasury published back in January this year and I think all Philip was doing was simply referring back to that in response to a senior member of parliament,” Mr Lidington told BBC Radio 4’s Today programme.

In his letter, addressed to the senior Tory MP and chair of the Treasury Select Committee, Nicky Morgan, Mr Hammond said: “This January provisional analysis estimated that in a no-deal/WTO scenario, GDP would be 7.7 per cent lower (range 5.0 per cent -10.3 per cent) relative to a status quo baseline. This represents the potential expected static state around 15 years out from the exit point.

“The analysis did not estimate the path the economy and different sectors might take under no deal and the potential for short-term disruption.”

He added: “GDP impacts of this magnitude, were they to arise, would have large fiscal consequences.”

In her response, the pro-EU MP, Ms Morgan, replied: “The chancellor has confirmed that the government forecasts a disastrous hit to our economy and living standards in the event of a no-deal Brexit.”

The row came as the World Trade Organisation director general Roberto Azevedo has said a no-deal Brexit would not “be the end of the world” but added it would not be “a walk in the park either”.

Kael De Gucht, the former European commissioner for trade, also suggested the prospect of a no-deal Brexit was “highly unlikely” and that he believed at the very least a “very vague deal” will be agreed before Britain formally leaves the bloc in March 2019.

“In the end there will be a deal,” he told said. “Whether this is a solution is quite a different question.”