Philip Hammond has said the Brexit vote underlined the "urgent" need to tackle the UK economy's long-term weaknesses as the Budget watchdog slashed growth forecasts for next year.
The Chancellor, delivering his first and last Autumn Statement, said the economy had so far "confounded commentators" with its "strength and resilience".
But he revealed the Office for Budget Responsibility had downgraded growth forecasts for next year from 2.2 per cent to 1.4 per cent as a result of the uncertainty caused by the Brexit vote and higher inflation due to the fall in sterling.
Hammond told MPs: "That's slower, of course, than we would wish, but still equivalent to the IMF's forecast for Germany, and higher than the forecast for growth in many of our European neighbours, including France and Italy."
The Chancellor said the June 23 vote to leave the European Union will "change the course of Britain's history" and "makes more urgent than ever the need to tackle our economy's long-term weaknesses" including the productivity gap.
Borrowing and investment
Public sector net borrowing to fall from 4 per cent of GDP last year to 3.5 per cent this year continuing to fall and reaching 0.7 per cent in 2021/22.
Mr Hammond told MPs Government borrowing would hit £68.2 billion (NZ$121b) this year and £59 billion (NZ$104b) next year compared with the March forecast of £55.5 billion and £38.8 (NZ$69b) billion.
Additional borrowing of £23 billion (NZ$40b) over the next five years is to be used to invest in infrastructure and innovation to raise UK productivity.
A new £2.3 billion (NZ$4b) Housing Infrastructure Fund will deliver infrastructure for up to 100,000 new homes in high demand areas and £1.4 billion (NZ$2.5b) will be made available to deliver 40,000 additional affordable homes.
Additional investment in research and development will see a rise to an extra £2 billion (NZ$3.5b) per year by 2020/21.
There will be an extra £1.1 billion (NZ$1.9b) investment in English local transport, including pinch points on strategic roads, digital signalling on railways and low emission and autonomous vehicles.
The Chancellor also warned that debt would continue to rise as a result of a weak economic outlook, rising from 82.6 per cent to 87.3 per cent by the end of 2017.
Due to the Government's softening approach to eradicating the deficit - which will not be completed now until the next Parliament - debt will peak in 2017-18 at 90.2 per cent of national income, before falling again in 2019 to 89.7 per cent.
Data from the OBR also showed that public sector net debt is forecast to hit £1.945 trillion by 2020. It predicts it will hit £1.952 trillion by 2021/2022. This means that by the end of parliament national debt will have increased by £220bn.
Eurosceptics hit back
Eurosceptics have hit out at the "gloomy" OBR forecasts and insisted that post-Brexit Britain's economy will be stronger than predicted.
The OBR said that GDP growth in 2017 has been revised down from 2.2 per cent to just 1.4 per cent as the British economy copes with leaving the EU.
It is probably worth mentioning that the OBR very specifically says in its report that there is an unusually high degree of uncertainty in the forecasts it is making because of the unusual circumstances.
But Brexit-backing Conservative MPs hit out at the forecasts which they said are "probably still quite wrong".
Jacob Rees-Mogg (North East Somerset), said: "It seems to me that there are two problems with those assumptions.
"One is that they assume that we will apply tariffs on the same basis inside the European Union, which the Chancellor will know he will be able to remove.
"And secondly, they're particularly gloomy on the prospects for financial services.
"I wonder, therefore, if we might be able to take a little bit more of an optimistic tone, and indeed with the freedoms we have outside the customs unions and the single market, the ability to solve the productivity problem."
Public debt has trebled since 2005, from £0.5 trillion to £1.6 trillion. Yet today was day SW1 bubble decided to blame it on Brexit. Spivs— Douglas Carswell MP (@DouglasCarswell) November 23, 2016
John Redwood (Wokingham) said: "The OBR are probably still quite wrong about 2017 - their forecast is too low, their borrowing forecast is too high, and we will get good access to the single market once we are out of the EU."
Hammond said it is not for him to question the forecast but to respond to it.
He told the Commons: "It is not my job to opine on the report that the OBR has made by statute to Parliament.
"It is my job to respond to it. And that is what I have done today.
"Obviously, economic forecasting is not a precise science and I absolutely recognise, as with the OBR, that individual members will have their own views on the likely future trajectory of our economy.
"It is probably worth mentioning that the OBR very specifically says in its report that there is an unusually high degree of uncertainty in the forecasts it is making because of the unusual circumstances."