Philip Hammond referred to the British economy as "remarkably robust" during today's Spring Statement.
That raises the prospect that Brexit will be delayed, bringing relief to businesses but extending the uncertainty hanging over the economy.
Hammond announced official forecasts showing growth would be weaker this year than expected in October, but Britain's budget deficit would be smaller.
British finance minister Philip Hammond said on Wednesday he could free billions of pounds for extra public spending or tax cuts, as long as parliament resolves its Brexit impasse.
"In recent weeks survey indicators of current activity have weakened materially, in part reflecting heightened uncertainty related to Brexit", the OBR said.
On Tuesday, parliament rejected Prime Minister Theresa May's proposed Brexit plan for a second time, little more than two weeks before the scheduled date of departure from the EU.
"This is up from £15.4 billion in October, as the fiscal costs of the temporary near-term cyclical weakness of the economy have been swamped by the fiscal gains from higher income tax 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.
"Cumulative growth over the five years is now slightly higher than the Budget forecast", Mr Hammond said.
The UK economy is forecast to grow by 1.2 percent this year, sharply down on the government's prediction of 1.6 percent in October, Hammond said as he gave a budget update hours before MPs vote on whether to allow the country to leave the European Union with no deal.
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 forecast changes and policy decisions leave (Hammond) with £26.6 billion (1.2 per cent of GDP) of headroom against his fiscal mandate", the OBR said.
Responding to the Spring Statement, chairman of the LGA Lord Porter said: "The government's plan to publish the Spending Review alongside the Autumn Budget this year could exacerbate the funding challenges facing councils and will severely hamper their ability to plan ahead for next year and beyond".
Mr Hammond said rejecting an immediate no-deal Brexit and extending Article 50 could help find a "deal we can collectively support".