The Chancellor's full Budget statement said the UK recovery will be "particularly uneven" this year as the economy still faces three major threats.
Although the economy will escape recession, the extra bank holiday in June and the Olympic Games over the summer will hit quarterly growth, the statement said.
The Office for Budget Responsibility predicts the economy will expand by 0.8% this year, an increase from the previous forecast of 0.7%, and in line with the private sector consensus.
The figure is still well below the Bank of England's November forecast of 1.5% GDP growth for the year.
However, the OBR revised down its forecast for 2013 from 2.1% to 2%. Forecasts for 2014-2016 remain in line with previous estimates.
The three major challenges to the UK economy outlined in the Autumn Statement continue to threaten the recovery, Osborne said.
These are the eurozone debt crisis and consequent tightening of credit conditions; higher inflation driven by the 40% jump in the oil price between 2010 and 2011; and the lasting impact of the 2008 financial crisis.
The Budget statement said: “Many forecasters now expect the euro area to experience a shallow recession. A number of euro area countries have already entered recession following two negative quarters of growth.”
However, some risks in the region have been tempered by the European Central Bank’s LTRO liquidity injection, it added.
CPI inflation in the UK is expected to fall back sharply through the rest of 2012, moving close to the government’s 2% target by 2013 as upward pricing pressure from commodities pulls back.
Meanwhile, record low interest rates have contributed to the UK being seen as a ‘safe haven’ and boosting demand for government debt, Osborne said.
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