May's government looks unlikely to win parliament's backing for the plan she has agreed with the European Union to leave on March 29, which will preserve some trade advantages but leave Britain subject to EU rules.
If May loses the Dec. 11 parliamentary vote on her deal it would open up possibilities that include a limited renegotiation, Britain leaving with no transition deal, a new election or even a second Brexit referendum, although the last is something May has ruled out.
Hammond told parliament's Treasury Committee of the dangers of rejecting May's plan and either not leaving the EU at all or abruptly breaking most ties with the bloc.
"Any solution which left the country divided, left a large segment of the population feeling betrayed, in my view, would have a negative political impact and societal impact that would far outweigh the very small economic impact that the White Paper scenario is showing here," he told the committee.
Hammond said it would be "catastrophic" for Britain if it remained mired in the Brexit debate for years to come.
"We have to resolve this," he said.
A government analysis last week showed a plan similar to May's preferred option would cause only a small amount of economic damage compared with staying in the European Union, while a "no deal" Brexit would hurt growth more.
Separate Bank of England analysis showed that in a worst-case "no deal" scenario, Britain would suffer a sharper recession than after the financial crisis.
The BoE would probably expect the government to step in to provide fiscal stimulus in that situation, due to its inability to cut interest rates at a time when sterling would be tumbling and inflation pressures mounting, Hammond said.
Years, not months, would be needed for Britain's ports to be ready to handle the customs and regulatory checks required under the standard World Trade Organization terms favoured by some Brexit supporters, he said.
"To be very frank with you ... the planning system might struggle to approve such significant infrastructure changes in two years," he said. (Additional reporting by Amy O'Brien, writing by David Milliken; Editing by Janet Lawrence)
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