There is magic in the world. Real magic!
Most people just can't handle it.
But is it real, though?
I mean, witches, black magic, and all that - it's real?
Course it isn't!
As agents of the Warehouse, Pete and Myka have been briefed on many aspects of the work they do. So they know the truth about magic in Toobworld.
And this is why the Doctor denies that it exists. It's part of his mission to protect the people of this planet and that includes keeping them from learning too much about real magic.
This comes under the category of the Number One rule about the Doctor: He lies.