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Hammond said the UK's situation would deteriorate "in purely economic terms" given all the possible outcomes of Brexit, including the agreement reached by the Prime Minister.
On Wednesday morning, the Chancellor suggested that the government had begun its emergency preparations for losing the vote in Parliament on Theresa May's Brexit deal with the EU.
According to Guardian's latest badysis, 94 Conservative MPs confirmed that they would vote against the deal, with figures likely to switch to three figures in the coming days.
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Hammond suggested that the economic shock would be mitigated if the agreement was reached, rather than leaving the UK without agreement.
Asked about the possible cost of all the scenarios, Mr. Hammond said: "If you are considering this from a purely economic point of view, it is true that leaving the European Union will have a cost because there will have obstacles to our trade. "
Hammond said the agreement "would absolutely minimize these costs" and offer political advantages of being able to sign new trade agreements and put in place new controls on fishing waters. "The economy will be slightly smaller in the Prime Minister's favorite version," he said.
He added that if the government lost the vote in parliament on 11 December, it would be an "unknown political territory". More than half of the Conservative backbenchers who are not part of the government's payroll have pledged to vote against the agreement.
Hammond said the ministers would look into why MPs voted against the agreement and then try to reach consensus. "We will then have to sit down as cabinet and government and decide where to go on the basis of the vote, what we saw in the vote and who voted in what way because we live in a clear democracy, Parliament is sovereign, "he said.
"If Parliament decides to reject the Prime Minister's proposal, we will have to look very carefully at the way forward."
Hammond said it was clear that many Brexit scenarios did not command a majority in parliament. "What is more difficult to discern is what there is a consensus for," he said. "We are trying to build consensus around the Prime Minister's plan … if it is rejected, we will have to look at the options.
"We will have to look at parliamentary arithmetic, look at what Parliament has decided and see what is the best way to proceed."
Hammond, a former representative who argued on the need to mitigate the economic costs of Brexit, said he was not convinced by any of the other scenarios, like a Norwegian-type deal.
"All the other options have disadvantages and we must consider not only the economy, but also the need to heal a fractured country. We will not succeed if we remain fundamentally divided and split on this issue. "
The badysis that the government publishes examines the impact of the economy over 15 years and should echo the findings of an badessment that had been leaked at the beginning of the year and which showed that GDP would be affected.
Hammond said that the economy would continue to grow as part of the May deal and that the impact would be "very small" and would be "the optimal way to leave the European Union and to obtain the results of the referendum ".
The Chancellor said that the badysis would show that an exit without an agreement would have a much bigger impact on the economy than the agreement that the two sides have negotiated.
"To become a fully independent country and to trade as an independent country with the European Union introduces a certain degree of friction in our trade," he said. "Our commitment is to minimize these frictions and we have brought our European neighbors to agree, as part of this agreement, that we will work together to do so."
Hammond said: "If we rely solely on the economic situation, staying in the single market would give us an economic advantage," commentators commented that might upset the Brexiters.
The government emphasized that the report, prepared by Whitehall officials, was an badysis and not a forecast.
The Chancellor said that the true cost of leaving the EU would only be known once a definite relationship would have been negotiated with the bloc. "The precise text of the legally binding treaty has yet to be negotiated and until this text is negotiated and locked, there will be an element of uncertainty," he said.
Labor MP Owen Smith, a supporter of the anti-Brexit campaign "Best for Britain," said: "This must be the first case in the history of our country where the man in charge of our economy has recommended reducing it – less for the NHS, schools, the military or our transport infrastructure. "
The Chancellor also criticized the plan by saying that no one had proposed a better one. "This is by far the best way to leave the EU by protecting our jobs and our prosperity," he said.
"This is our plan, we are promoting it to the British people and our colleagues. Of course, we are preparing contingency plans for the eventuality of a Brexit without agreement. But it's not something anyone wants to see, this is not a good result for the UK. "
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