Chancellor Gordon Brown has cut his predictions for UK economic growth and announced an increase in government borrowing.
Brown's Budget: Cautious welcome from business
Unveiling his seventh Budget, the chancellor also outlined measures that see greater taxes for smokers and drinkers, a new "baby bond" and benefits for pensioners.
Despite cutting his growth forecast, Mr Brown remained bullish over prospects for the UK economy. He said Britain was in a much stronger position than other countries amid the global slowdown.
Treasury officials said the overall economic impact of the Budget was neutral and, as most economists expected, there were no major tax rises or giveaways announced.
The chancellor said economic growth this year would be between 2% and 2.5% compared with his prediction in November for 2.5-to-3% growth.
He said government borrowing this year would be £27bn - up £3bn on his earlier prediction.
The Budget received a cautious welcome in the business community, said BBC business editor Jeff Randall.
Many had feared the borrowing figure would be much higher, he said, while corporation tax and capital gains tax were frozen.
£250 "baby bond"
1p on pint of beer
Extra help for pensioners
8p on 20 cigarettes
Spirits duty frozen
But some economists saw less reason for cheer, saying Mr Brown's growth forecasts were too optimistic and he was gambling that the need to take tough decisions would recede rather than increase.
DeAnne Julius, a former member of the Bank of England's interest rate-setting body, said: "He is placing his hopes on a quick recovery this year and next but if that does not happen, we will see a ballooning deficit in the coming years and not a shrinking one,"
Mr Brown said the UK had experienced the longest period of sustained growth for 50 years - and he stuck by his prediction last November that growth in 2004 would be between 3% and 3.5%.
He said: "Britain, even amidst global uncertainty, is not only doing better than in the past, but also doing better when we make the comparison with other countries."
Tory leader Iain Duncan Smith said Mr Brown had got his forecasts wrong again, with borrowing and taxes rising.
He said: "His Budget message to the British people is clear -
higher taxes, that is more pain today. Higher borrowing that is more pain
Liberal Democrat leader Charles Kennedy said the Budget was a combination of "buck-passing" and "cross your fingers and hope for the best".
He said: "There is a sense of denial about this amazing account the chancellor has been able to give us."
'Sin taxes' rise
The chancellor said there would be no changes to income tax rates and allowances set out in last year's Budget and pre-Budget report.
But the thresholds - the rates at which taxpayers pay 10%, then 22%, then 40% income tax - are being increased in line with inflation.
Stamp duty on house purchases is to be frozen.
Mr Brown did amend inheritance tax, raising the threshold to £255,000 from £250,000.
He said the price of a pint of beer would rise by a penny from Monday, while a bottle of wine would cost four pence more. A packet of 20 cigarettes will rise by eight pence.
Drinks and tobacco industry groups were critical, saying the tax rises would increase smuggling.
Duties on spirits, cider and sparkling wine are being frozen, while bingo tax will be abolished from 4 August.
Mr Brown said pensioners would benefit from Pension Credit from October, while those aged 80 and above would receive an extra £100 winter fuel allowance, increasing the total allowance to £300.
And he said overnight charges for long hospital stays would be abolished for pensioners.
Mr Brown was barracked by opposition MPs as he insisted his "golden rule" - where borrowing is used only for investment - would not be broken.
He insisted that the government's fiscal rules were being maintained.
The chancellor began his statement by saying it was the first time in 50 years that a Budget had been announced with UK armed forces at war.
And he announced extra cash - £330m - for counter-terrorism measures in the UK.
This Budget just adds to the financial misery of the council tax rise we have suffered - it is take, take, take
Euro verdict by June
There were details of new Child Trust Funds, or "baby bonds", with the government paying £250 for every child born since September 2002.
And the chancellor had a modest present for motorists, saying he was deferring until 1 October the planned rise in fuel duties because of uncertainty caused by the Iraq war.
On the euro, Mr Brown said he would deliver his verdict by the first week in June on whether the UK had met the Treasury's five economic tests for joining.
Some eurosceptics saw support for their position in his comment that the biggest risks for the UK's
economy "arise from the further fall in growth prospects for the