Britain's treasured AAA credit rating has been confirmed by Standard & Poor's but the ratings agency warned that the Government's austerity drive would drag on growth in the coming years.
S&P gave its backing to the Chancellor's deficit reduction plans and said Britain's "wealthy and open economy" improved its "capacity to absorb shocks".
The ratings agency said the outlook for the UK's AAA rating was "stable", putting it at odds with fellow agencies Moody's and Fitch, which have both placed the country's top tier rating on a "negative outlook", and at heightened risk of an outright downgrade.
George Osborne said S&P's decision was a reminder that without austerity Britain would be led into "an economic catastrophe".
"Britain is weathering the international debt storms because of the policies we have adopted and stuck to in tough times," he said.
S&P warned, however, that such policies would limit growth "over the next few years", while household spending would also be hit by weak wage growth, rising unemployment and a weak housing market.
The weakness of the economy was underlined on Friday as respected City economists said "profoundly" weak data from the construction industry put Britain on course for a double-dip recession in the first quarter.
The economy probably shrank by 0.1pc over the first three months despite Office for National Statistics figures showing a 6.1pc rise in construction output in March, according to economists at Royal Bank of Scotland (LSE: RBS.L - news) .
That would signal a technical recession of two successive quarters of contraction, following a 0.3pc fall in gross domestic product in the final quarter of 2011.
Construction output accounts for just 6pc of the UK economy, but growth in March followed declines of 12.9pc and 10.3pc in January and December respectively, meaning even a sharp rise in March would not be enough to prevent a drag on growth, according to Simon Hayes of Barclays Capital.
"The recent monthly data have been so profoundly weak that they could have a major effect on the overall GDP growth estimate for Q1," Mr Hayes, said.
He said construction output was likely on course for the largest quarterly fall since 1963, when severe snow storms and persistent freezing temperatures caused major disruption to everyday life, including cuts in domestic water and power supply. He said construction could subtract 0.5 percentage points from overall growth between January and March.
The ONS will publish its first estimate of first-quarter growth on April 25, and the outcome will be a major factor in the Bank of England's decision whether or not to expand quantitative easing next month. Separate data showed factory gate inflation remained stubbornly high in March.