THE Chancellor today announced lower UK growth forecasts, rising unemployment and a two-year public sector pay cap in his Autumn Statement.

But George Osborne said that independent Office for Budget Responsibility (OBR) is not predicting recession for the UK - as the Organisation for Economic Co-operation and Development (OECD) did yesterday.

The OBR predicted growth at 0.9 per cent for this year and 0.7 per cent for 2012 - sharply downgraded from 1.7 per cent and 2.5 per cent in its last forecasts at the time of the March Budget.

And to a packed House of Commons Mr Osborne revealed that the OBR was predicting that unemployment would rise from 8.1 per cent this year to 8.7 per cent next year, before falling to 6.2 per cent by 2016.

He risked a fresh clash with unions today announcing plans to cap public sector pay rises to one per cent when a current wage freeze ends.

Mr Osborne told MPs that further restraint on public sector pay was needed from 2013/15, saying the Government could not afford a 2 per cent rise assumed by some departments.

Local government and health workers are among millions of public sector workers whose pay has been frozen for two years, which has worsened the bitter dispute over pensions.

And a review to make public sector pay more ''responsive'' to local labour markets could lead to lower wage levels in areas outside London and the South East.

The Chancellor also indicated that the state pension age would now go up from 66 to 67 as soon as 2026 - saving a ''staggering'' £59 billion in the long term.

Alongside a £40 billion ''credit easing'' scheme to get money into small businesses, he outlined £5 billion of infrastructure projects to be given the go-ahead straight away.

The bank levy would rise to 0.088 per cent to raise the £2.5 billion a year the Government wanted from it, he said.

Help for families needing housing would also include a ''reinvigorated'' right to buy with discounts of up to 50 per cent available for council house sales - with the money used to build a new affordable property for each one sold, he said.

The Chancellor took a little sting out of the planned New Year train fare rise by announcing an RPI plus 3 per cent rise, introduced by this Government, was ''too much'' and that the increase would be limited to RPI plus 1 per cent.

And drivers enduring high petrol prices were given some respite.

Mr Osborne announced that the 3p fuel duty increase planned for January 2012 would be cancelled, while the 5p hike due in August 2012 would be only 3p higher than prices now.

Mr Osborne said the measures announced today would be revenue-neutral, neither adding to borrowing nor producing extra savings.

Additional spending on infrastructure will be paid for by cuts in current day-to-day expenditure to avoid driving the deficit back up, he said.

The Chancellor confounded some predictions by announcing that benefit payments will be uprated from next April in line with the 5.2 per cent inflation rate recorded in September and the disability element of tax credits and the child element of the child tax credit would also be increased in line with prices.

But he revealed that he will save cash by holding down increases in other elements of the tax credit system.

Mr Osborne had cheer for the elderly, announcing a rise of £5.30 in the basic state pension to £107.45, which he said was its largest ever cash rise. Pensioners receiving pension credit will also benefit from an increase worth £5.35.

And Mr Osborne had a blunt message for the unions, who are preparing to strike over reforms to public sector pensions tomorrow.

Insisting that the Government's offer on pensions was ''fair'', the Chancellor told the unions: ''Call off the strikes tomorrow. Come back to the table. Complete the negotiations and let's agree generous pensions that are affordable to the taxpayer.''