He warned that Britain leaving the European Union without a deal would deliver a significant short-to-medium term hit to the productive capacity of the British economy while a Brexit deal could unlock more spending.
He said that using the Spending Review would "give us as a nation real choice" to decide how much of the deal dividend is released and how it can be shared between increased spending on public services.
Delivering his statement after MPs emphatically rejected Theresa May's Brexit deal for a second time on Tuesday night, the Chancellor said the issue was "damaging our standing and reputation in the world".
Growth forecasts in 2020 and 2021 stood at 1.4 and 1.6 percent respectively, compared with forecasts of 1.4 percent for both years made in October. Hammond nevertheless reaffirmed the government's commitment to provide the country with a "deal dividend".
"Cumulative growth over the five years is now slightly higher than the Budget forecast", Mr Hammond said. This year's projected budget deficit has fallen to £29.3bn, the smallest fiscal shortfall since 2001, with annual borrowing set to drop further to £13.5bn by 2023.
Nadal WD's before Federer clash with knee injury
What can I say? "I will try my best to recover - these are the matches I want to play", the 32-year-old said, BBC Sport reported. The Nadal-Federer matchup would have been the 39th meeting in their careers and the first in 16 months.
"Last night's vote leaves a cloud of uncertainty hanging over our economy", Hammond said in Parliament.
Other highlights from the statement included an extra £100m to tackle knife crime, a £3bn Affordable Homes Guarantee scheme and a reduction in borrowing.
The chancellor unveiled a lower growth forecast for 2019, cut to 1.2% from 1.6%. "The idea that some readily available fix to avoid the consequences of a no-deal Brexit is just wrong". Accordingly, we think that a turning point has been reached: "fiscal policy no longer will dampen the economy, strengthening the case for the Monetary Policy Committee to raise interest rates shortly after the economic disruption created by Brexit uncertainty has faded".
"In recent weeks survey indicators of current activity have weakened materially, in part reflecting heightened uncertainty related to Brexit", the OBR said.
The OBR said a recent run of disappointing economic data in both the United Kingdom and other major economies had also weighed on expectations. "This year's forecast downgrade brings the danger of no deal to the United Kingdom economy sharply into view". He added the forecasts are "predicated on a fairly smooth transition, they're certainly not predicated on crashing out without a deal".