Downgraded figures from the Office for Budget Responsibility confirmed the economy will contract by 0.1% this year before growing by 1.2% in 2013, 2% in 2014 and 2.3% in 2015.
He described the statement as “fiscally neutral” with money shifted from current to capital spending.
Osborne confirmed an extra £5bn for capital investment funded by efficiency savings across Whitehall departments as annual infrastructure investment was increased to £33bn.
Among an extra £1bn for roads will be a start on four major schemes on the A1, A5, A30 and M25
The Northern line will also be extended to Battersea Power station after the Government agreed to underwrite a £1bn loan for the London Underground project. It is the first major infrastructure project to benefit from the UK Guarantee scheme.
The Government also pledged to “assist” construction of 120,000 new homes and improve flood defences under already announced spending handouts.
The Chancellor confirmed reforms of the PFI system and said that £10bn of schemes had qualified so far under its UK Guarantees initiative.
A further £1bn will be spent on expanding good schools and building 100 free schools and academies in this parliament.
Another £270m will be released to improve further education colleges in England.
He also increased tenfold to £250,000 the tax relief on investment in plant and machinery and pledged to cut the main rate of corporation tax to 21% by 2014.
Osborne said: “The British economy is healing. There are no quick fixes but we are making progress and Britain is on the right track. Turning back now would be a disaster.
“We are confronting the country’s problems rather than ducking them.
“In everything we do we are helping those who want to work hard and get on.”