Rachel Reeves blamed “global uncertainty” as she announced swingeing cuts to welfare and other public spending designed to plug a fiscal hole caused by soaring borrowing costs and sluggish economic growth.

The chancellor told the Commons that the UK’s growth forecast for this year had been halved from 2% to 1% by the Treasury watchdog, which concluded that the chancellor would have missed her goal of balancing the books if she did not act.

Striking a defiant tone, Reeves set out measures in her spring statement that she said would turn a predicted £4.1bn hole in the public finances back into a £9.9bn surplus within five years. This would restore “in full” the headroom against her self-imposed fiscal rules, she said.

In a pointed message to her cabinet colleagues and Labour backbenchers who have privately argued for the fiscal rules to be revisited, Reeves said they were “non-negotiable” and “an embodiment of this government’s unwavering commitment to bring stability to our economy”.

She suggested that abandoning those fiscal rules would be an irresponsible move akin to Liz Truss’s disastrous 2022 mini-budget.

The chancellor said the cuts she announced would be offset by billions of pounds in long-term investment to grow the economy, with a particular focus on the building of millions of new homes and supporting higher spending on defence.

“The responsible choice is to reduce our levels of debt and borrowing in the years ahead so we can spend more on the priorities of working people and that is exactly what this government will do,” she told MPs.

The reductions to the welfare budget, which have appalled Labour backbenchers, charities and campaigners, were deeper than expected. Reeves was forced into finding billions of pounds in additional savings after the OBR said ministers had overestimated the impact of the changes announced by Liz Kendall last week.

Announcing further reductions, the chancellor said the universal credit standard allowance would be increased from £92 a week to £106 a week by 2029-30. Health-related entitlements linked to universal credit will be cut by 50%, then frozen.

Threatening to reignite a fierce internal row, Reeves confirmed she would push through this further round of benefit cuts in a “final adjustment” after the OBR’s eleventh-hour assessment. Alongside £1bn of support to help claimants find work, she said the plans would save £3.4bn in total.

She also announced cuts in Whitehall including a reduction in the civil service headcount, which are expected to save £3.5bn by 2029-30.

In an effort to shift focus away from the cuts, Reeves said she would provide additional funding for defence and was topping up the funding for long-term infrastructure projects by an average of £2bn a year compared with the autumn budget.

Aiming to draw a dividing line with the Conservatives as she responded to an increasingly gloomy global economic backdrop, she said cuts to longer-term projects would be the wrong choice. “[In the past] that choked off growth and it left our school roofs literally crumbling. That was the wrong choice; it was the irresponsible choice; it was the Tory choice.”

Reeves said the OBR had scored the government’s planning reforms, including the mandatory housing targets announced in December by Angela Rayner, and found that they would increase GDP by 0.2% and raise more than £6bn by 2029-30.

She added that this would help build 1.3m new homes by the end of the parliament, according to the OBR’s calculations. The government’s target is to build 1.5m homes by then.

Britain’s economy has come close to stagnation in recent months as households remain under pressure from high prices and elevated borrowing costs from the Bank of England.

Despite the halving of this year’s growth forecast, the chancellor said the OBR had upgraded its forecasts for every year until the end of the decade as a direct result of Labour’s radical planning reforms announced last year, which would add 0.2% to the size of the economy by the end of the decade and 0.4% within 10 years – worth an additional £15.1bn.

“[That is the] biggest positive growth impact that the OBR have ever reflected in their forecast for a policy with no fiscal cost,” she said.

Mel Stride, the shadow chancellor, accused ministers of having “reneged on their promises to the British people” in the election and said the country was “weaker and poorer” as a result of their actions.