Speaking to the BBC, Hammond confirmed reports the cabinet had agreed to a transitional period after Brexit and said "many things will look similar" the day after Britain leaves the European Union in March 2019.
The chancellor said: "I can't tell you a precise period of time because we haven't had that discussion yet, it will be driven by technical considerations - how long it will take us to put the necessary arrangements in place". Hammond said the government now wants an overall transition deal. A transitional period after that means the entire Brexit process could take five years.
The finance minister's comments follow similar ones from fellow cabinet ministers in recent weeks, which have led investors to bet on a lower chance of a hard Brexit in which Britain loses any preferential access to the single market, and which have given some support the currency.
As it stands, Parliament will cast the final vote to approve Britain's exit from the European Union once a deal is finalised.
But the government has moderated its position since the surprise election setback.
"There will be a process between the date we leave the European Union and the date on which the new treaty-based arrangements between the United Kingdom and the European Union which we hope and expect to negotiate come into force", said Hammond.
In March, a KPMG study warned that the sector would need to recruit an additional 60,000 workers a year in addition to the 200,000 staff required to replace churn and boost growth if European Union migration was restricted. They play a vital role across the economy, from tech firms to banks, the health service, farms and the hospitality industry.
The unexpected announcement comes hot on the heels of Brexit campaign leader Nigel Farage warning that "the old alliance of big business and a Tory government" were preparing a "great Brexit betrayal" on immigration.More news: Eight Jamaicans among persons held in United States immigration sweep in NY
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Hammond made clear on Friday that European Union migrants were unlikely to be turned away at the border after March 2019, so long as they register when coming in and out of the country.
"Negotiations to leave the European Union are under way and we have already made good progress on a number of issues", she said.
"The more they drag on, the less time is left for second phase and special relationship they want".
"That's not a matter of opinion, that's a matter of fact".
The apparent shift in strategy coincides with a barrage of data that suggest Britain's already weak economy may be drifting toward recession.
That consultation will result in another report to come out in September next year. Wages are stagnating and consumer confidence is crashing.
The threat of further economic pain, combined with the need to get a deal quickly, makes the kind of Brexit described by Hammond the most appealing option for the business community. The EU signaled on Friday that a transition period can only be agreed after the separation terms.
"Government officials are working at pace and we are confident we will have made sufficient progress by October to advance the talks to the next phase", said the spokesman.