Jeremy Hunt has said the British economy will avoid a technical recession this year while announcing an extension in financial support for households struggling with the cost of living crisis.

In a statement to the Commons aiming to reboot Britain’s faltering economy, the chancellor said he would prioritise support for parents with childcare costs alongside a multibillion-pound package of tax breaks for business to encourage investment.

However, updated forecasts from the Office for Budget Responsibility (OBR), the government’s tax and spending watchdog, showed the economy would still shrink by 0.2% in 2023 even though it would avoid two consecutive quarters of contraction – the technical definition of a recession.

The government earlier on Wednesday confirmed that its energy price guarantee supporting households would continue to cap the typical annual gas and electricity bill to £2,500 per customer until the end of June, in a widely expected move.

Hunt outlined his plans for the nation’s finances against a backdrop of mounting turbulence in global financial markets as banking shares were rocked by concerns about Credit Suisse, one of Europe’s biggest lenders, extending days of turmoil triggered by the collapse of the US lender Silicon Valley Bank.

In a well-trailed budget statement, the chancellor said measures he was taking would bring down inflation while “helping people struggling during tough times”.

The OBR said inflation was forecast to fall by more than half, from a peak of 10.7% last autumn – the highest rate since the early 1980s – to 2.9% by the end of the year, in a widely expected upgrade after estimates last made in November.

The government will freeze fuel duty for motorists, as well as beer duties, alongside extending energy support. Hunt said the combined impact reduces inflation by almost three-quarters of a percent this year.

Hunt said his measures were designed to encourage people back to work after a dramatic fall in employment among over-50s since the Covid pandemic, which has left businesses already affected by Brexit grappling with chronic staff shortages.

Answering calls from business groups to help parents with childcare costs to encourage mothers to return to work or increase their hours, Hunt said the government would expand existing support for preschool children to offer 30 hours of funding for one- and two-year-olds, at a cost of £4bn.

After furious lobbying from company bosses and backbench Conservative MPs worried over a sharp rise in corporation tax from April, the chancellor said he would offset the move with billions of pounds in investment reliefs for companies.

“Today we deliver the next part of our plan, a budget for growth,” Hunt said. “Not just the growth that comes when you emerge from a downturn, but long-term sustainable healthy growth that pays for our NHS and schools, and provides jobs for younger people.”

Confirming several widely trailed measures, the chancellor pledged to create 12 investment zones in eight areas, including the West Midlands and the north-east, “to drive business investment and level up” the country, each backed with £80m of government funding.

Hunt announced a budget designed to stabilise the economy after the fallout from November’s disastrous Liz Truss mini-budget. But his budget was in danger of being overshadowed as fears over the banking sector gripped the City.

In London the FTSE 100, Britain’s blue-chip share index, slumped by 2.5% to its lowest level since last December. Trading in the shares of some of Europe’s biggest banks, including BNP Paribas, Société Générale and UniCredit, was briefly halted and restarted as the speed at which their stock prices fell triggered automatic circuit breakers.

The sell-off was sparked when Credit Suisse’s s largest investor, Saudi National Bank, said it could not provide the Swiss bank with more financial assistance because of regulatory rules.