By William James and William Schomberg
LONDON (Reuters) - The split in Britain's ruling party over how to leave the European Union was exposed again on Friday as pro-Brexit MPs turned on the Chancellor for his latest warning that a so-called hard Brexit would hurt the economy.
The row underscored the size of the challenge facing Prime Minister Theresa May as she enters a crucial few months that will determine Britain's future relationship with the EU.
Chancellor Philip Hammond, seen as one of May's most pro-EU ministers, has long been a target for the many pro-Brexit MPs in the Conservative Party who say he is too pessimistic about Britain's future outside the EU.
On Thursday, Hammond distracted media attention away from the government's announcement of how companies and individuals should prepare for the possibility of a no-deal Brexit when he highlighted what it could mean for the economy.
Hammond pointed to Treasury forecasts made in January that predicted a no-deal scenario would push up borrowing by about 80 billion pounds a year in 15 years' time with the economy growing as much as 10 percent more slowly.
The move provoked an angry response from the leader of an influential group of pro-Brexit Conservative MPs who say a no-deal Brexit would not be as damaging as Hammond predicts.
"As a dog returneth to his vomit, so a fool returneth to his folly," lawmaker Jacob Rees-Mogg, head of the European Research Group, told the BBC, citing a Biblical proverb.
"The naysayers in the Treasury have consistently wanted to paint a bleak picture because they are frightened of taking responsibility for managing the economy without the crutch of the EU. It is a sign of their weakness."
Many Brexit supporters say the world's fifth-biggest economy could cope without an EU deal and rely instead on World Trade Organisation rules for its trade with the bloc.
However, WTO Director-General Roberto Azevedo told the BBC there would be an impact from a no-deal Brexit because trade barriers such as increased inspections, as well as tariffs, would probably go up at the borders.
The government is trying to negotiate a smooth exit from the EU but hard-to-resolve differences between London and Brussels and the approach of the March 2019 exit date have led to increased preparations for an abrupt Brexit.
Cabinet office minister David Lidington said Britain could cope with a delay in securing a deal if the talks extended into November and missed an informal October deadline.
Investors are worried about the prospect of Britain failing to get a deal with the EU. Sterling was trading near an 11-month low against the euro on Friday and has fallen about 11 percent against the U.S. dollar since April. [GBP/]
MAY'S GRIP ON POWER
People in Britain also seem to have turned more wary. An opinion poll published by Sky News on Friday showed 69 percent of respondents believed Britain would get a bad deal, up from 37 percent in March.
The split within the Conservative Party has raised further questions about whether May can deliver a deal.
Her plan to keep Britain linked to EU customs rules in exchange for continued access to the bloc's single market for goods prompted her Brexit and foreign ministers to quit in July.
May is likely to come under even greater pressure from within her party if she offers further concessions to Brussels, leading to talk of a leadership challenge.
The Conservatives said on Thursday they had prevented leading Brexit supporter Arron Banks from becoming a member of the party to help get a hardline Brexiteer elected leader if May steps down.
There have also been questions about the long-term outlook for the Conservatives whose supporters tend to be older than those of Labour, the main opposition party.
Data published by the Electoral Commission this week showed income for the Conservatives from membership fees fell to 835,000 pounds in 2017, down from 1.459 million in 2016.
Overall party income data showed the Labour Party, which has around four times as many members, received 10 million pounds more income than the Conservatives.
Conservative Party deputy chairman James Cleverly said the data did not reflect the fact that most funds collected were held by local party groups and not accounted for in the data.
(Editing by Janet Lawrence)