"And our most urgent task in this House is to lift that uncertainty".
He added though that the "economy itself is remarkably robust".
That raises the prospect that Brexit will be delayed, bringing relief to businesses but extending the uncertainty hanging over the economy.
Hammond added that the United Kingdom economy was expected to grow by 1.4 percent in 2020, unchanged from the government's October forecast.
British finance minister Philip Hammond said he now had 26.6 billion pounds of fiscal "headroom" - which is earmarked for possible increased spending or tax cuts - up from a previous estimate of 15.4 billion pounds.
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.
However, Britain's independent budget forecasters said nearly half of Hammond's fiscal headroom might be lost, depending on how official statisticians treat student loans in the public accounts.
"In recent weeks survey indicators of current activity have weakened materially, in part reflecting heightened uncertainty related to Brexit", the OBR said.More news: Australian senator who blamed Muslims for Christchurch terror attack egged
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His statement comes after Parliament overwhelmingly rejected May's Brexit deal for a second time on Tuesday night.
"Leaving with "no deal" would mean a significant disruption in the short and medium term, and a smaller, less prosperous economy in the long term than if we leave with a deal - higher unemployment, lower wages, higher prices in the shops".
Borrowing is expected to be lower this year, coming in at £22.8 billion, down £2.7 billion since October, which the OBR put down to higher income tax receipts and lower debt interest spending.
He said that it was "disappointing" that the chancellor had missed the opportunity to provide desperately-needed funding for local services, and added that Brexit can not be a distraction from the challenges facing our public services.
MPs were expected to vote later today against a no-deal Brexit and then vote on Thursday in favour of the government seeking a delay to Britain's departure, now scheduled for March 29.
The country's official budget forecasters expected gross domestic product would grow by 1.2 percent in 2019, down from a forecast of 1.6 percent they made when Hammond gave his full budget statement in October.
With the Brexit deadline approaching on March 29 and no deal reached over the UK's departure, the government is stepping up economic contingency plans.