A planned 3p rise in fuel duty has been put off until January in a £550 million change of heart by George Osborne that delighted motorists and MPs.
In what Labour described as "the fastest U-turn in history", the Chancellor announced in the Commons that the tax would be frozen for the rest of the 2012.
The latest in a series of Budget about-turns came just a day after the Transport Secretary insisted the rise was needed to tackle the deficit and hours after Labour calls for the change.
But the Treasury insisted it had been under discussion at the top of the coalition for almost a month and could be wholly paid for thanks to lower-than-expected Whitehall spending.
Announcing the measure to loud cheers from Tory benches in the Commons, Mr Osborne said fuel duty would now be 10p a litre lower than under the plans inherited from Labour.
"We are on the side of working families and businesses and this will fuel our recovery at this very difficult economic time for the world," he said.
His decision was lauded by motoring organisations, business leaders and the FairFuelUK campaign group whose petition on the Government's website has attracted nearly 150,000 signatures.
AA president Edmund King said the increase would have "cast a shadow over the UK" as it hosted the Olympics - estimating that a two-car family would be spared a £6.41-a-month leap in fuel costs.
It would have siphoned £1.6 million a day from consumer spending into the pump and knocked out a third of price cuts since the record highs in mid-April, he suggested.
FairFuelUK spokesman Quentin Willson said: "Businesses and hard-working families across this country will breathe a grateful sigh of relief, at least for the rest of this year."
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