Gordon Brown has said the UK economy is having a "tough year" and slashed his estimate of growth in 2005 to 1.75%, half his estimate in March's Budget.
But the chancellor said the UK economy remained stable despite high oil prices and slower house price rises.
He doubled North Sea oil profits tax, froze fuel duty and promised help for both pensioners and first-time buyers.
Shadow chancellor George Osborne said Mr Brown had been "humiliated" into "admitting he got it all wrong".
In his pre-Budget report speech, Mr Brown told MPs employment had grown and inflation remained low, and predicted economic growth of 2-2.5% next year and 2.75-3.25% in 2007.
Growth forecast halved to 1.75%
Borrowing £5bn higher
£2bn a year tax on North Sea oil profits
Proposed new tax on land sale profits
Extending the economic cycle by further two years
More 'shared equity' schemes for first-time buyers
Duty on petrol and diesel frozen
Pensioners' £200 winter fuel payment extended for the rest of the current Parliament. Over 80s to get £300
£135m extra for counter-terrorism
£580m extra for operations in Iraq and Afghanistan
Unclaimed bank assets used to fund youth projects
Mr Brown said: "This year we have seen... growth even in this toughest year at 1.75%, the 34th quarter of continued growth with low inflation".
Opposition MPs jeered at this stage to highlight the contrast with his Budget in March when Mr Brown forecast growth of 3% to 3.5% for this year and 2.5% to 3% percent next year.
The report revealed government borrowing this year would be £5bn higher than predicted in March - at £37bn this year - before falling in successive years to £34bn, £31bn, then £26bn, £23bn and then £22bn.
Mr Brown said the government would meet its fiscal rules over the current economic cycle with £16bn to spare, although economists say that is only because the economic cycle's start and end points have been changed.
Supporting documents also suggest the chancellor is working on the basis that public spending will increase at 1.9% in 2008, 2009 and 2010 - below the expected level of growth of the economy.
In a series of measures designed to boost the housing market, Mr Brown announced the extension of shared ownership schemes for first-time buyers and said local authorities would be forced to accelerate planning consent and bring forward brownfield sites for development.
He also announced a consultation on "planning gain" tax, which would allow local authorities to grab a slice of the profits made by developers who sell land after getting planning permission on it.
He extended the £200 pensioners' winter fuel payment to the rest of this Parliament and said people in England on the pensions credit will be given free installation of central heating. Other pensioners will receive £300 towards the cost.
He announced a doubling of tax on North Sea oil profits - a measure expected to raise £2bn a year.
Mr Brown pledged an extra £135m for security and counter-terrorism and an extra £580m for military operations in Iraq and Afghanistan.
In his response, Mr Osborne, a key ally of Tory leadership favourite David Cameron, denounced Mr Brown as "a chancellor past his sell by date, a chancellor holding Britain back".
"This is the tragic story of a chancellor who has been forced to wait so long to got to number 10 that his reputation in charge of Number 11 is crumbling", Mr Osborne told MPs.
He accused the chancellor of misleading the public at the general election over his growth forecasts.
"What he told the electorate at the time of the election about the state of the economy was not true and it is difficult to believe that he didn't know it at the time," Mr Osborne told MPs.
Vincent Cable, for the Liberal Democrats, said the chancellor needed to learn "humility".
Rather than acknowledging the economy was in trouble for wholly domestic reasons, Mr Cable said Mr Brown had "tried to blag his way through it by blaming the problems on the oil producers and slow growing Europe. And he knows this is complete nonsense."
Mr Cable added: "Why can he not stand up and acknowledge his own failures?"