Philip Hammond today delivered the first of the new-style spring statement to the House of Commons, which did not include major spending announcements.
Mr Hammond said debt was still too high and had to be brought down.
He did not acknowledge the OECD report, published earlier today, which said of the United Kingdom economy: "High inflation continues to damp real household income growth and consumer spending, and business investment is slowing, amidst continued uncertainty about the future relationship between the United Kingdom and the EU".
"Last year, we had the lowest economic growth in the G7 countries", he said on Sunday.
The chancellor has hinted that he will increase spending on public services when he delivers his budget in the autumn.
Borrowing is now forecast to be 45.2 billion pounds this year, 4.7 billion pounds lower than forecast in November.
But Hammond, delivering a half-yearly update on the government finances, said Britain's budget forecasters expected the economy to expand by 1.5 percent in 2018, up only a touch from a forecast of 1.4 percent in November even though the world economy is growing strongly.
Labour has called on the Chancellor to use the statement to declare a halt to austerity measures and "end the financial crisis in our public sector".
"Light at the end of the tunnel", he added.
Hammond told parliament that he was aiming to prove the forecasters wrong.
"Our public services are at breaking point and many of our local councils are near bankruptcy", he said.
"[He] proclaimed that there is light at the end of the tunnel. That shows how cut off he is", said McDonnell.
Hammond hit back, saying McDonnell affects the air of a "bank manager"; but every now and again "the mask slips", revealing his "dangerous ideology".
Sterling rose after the announcement, but Old Mutual Global Investors head of United Kingdom equities Richard Buxton said this was likely in reaction to the USA dollar falling on the news that U.S. secretary of state Rex Tillerson was being fired, rather than anything material contained in Hammond's statement.
Stressing the limits on his room for manoeuvre, Hammond told the BBC it was not clear that recent improvements in Britain's economy - such as a pickup in weak productivity growth - represented a long-term change.
Usually the Chancellor would use the opportunity to announce new fiscal policy, such as changes to tax and future spending commitments.
Hammond said the education secretary will release up to £80m to help small firms take on apprentices.
The OBR also projected that Britain would continue to pay the divorce bill until the year 2064, although the bulk would be paid over the next five years.