The British government has unveiled sharply lower economic growth forecasts, a day after the OECD warned the country was heading for a double-dip recession.
It said it would take longer than hoped to wipe out its deficit, meaning that tough austerity measures would extend beyond 2015.
Chancellor of the Exchequer George Osborne has warned that the British economy risked getting dragged into recession if the eurozone debt crisis was not solved.
"If the rest of Europe heads into recession it may prove hard to avoid one here in the UK," he told parliament.
He added: "Much of Europe appears to be heading into recession caused by a chronic lack of confidence in the ability of countries to deal with their debts.
"We will do whatever it takes to protect Britain from this debt storm while doing all we can to build the foundations of future growth."
The economy is now forecast to grow by only 0.7% next year, way below a March budget forecast of 2.5%, Mr Osborne said, presenting figures from the independent Office for Budget Responsibility (OBR).
Growth is expected to recover to 2.1% in 2013.
The prospect of years of fiscal austerity will fuel anger among unions on the eve of a one-day strike by 2m public sector workers over government spending cuts that will make them pay more and work longer for their pensions.
Borrowing will fall much less than expected because of slower economic growth, erasing any room for error in the coalition government's deficit reduction plan.
Mr Osborne said the OBR forecasts showed borrowing would fall to £79bn in 2014/15, against a March budget forecast of £46bn.
The new figures bring the government broadly into line with independent forecasters.
The OECD rich nations' economic think-tank said yesterday that Britain will slip back into a modest recession early next year.
It lowered its 2012 growth forecast to just 0.5% and urged the Bank of England to expand its money-printing programme.
Despite fears that the country is being pushed back into recession, the government will not fundamentally change tack with no additional borrowing or savings announced.
Britain has enjoyed record-low borrowing costs thanks to its perceived status as a safe-haven from the eurozone debt crisis, which helps alleviate the pressure on public finances.
Recognising that he has little scope to alter Britain's short-term economic prospects, Mr Osborne focused on measures that will boost growth in the longer term, such as promoting lending to small businesses and encouraging private sector investment in infrastructure.
He plans to tap British pension funds to provide the bulk of up to £30bn of investment in building projects, while the government will underwrite £20bn of loans to smaller companies struggling for credit.
