Fuel duty will now be frozen for the rest of the year, Osborne said.
Motoring groups and businesses running fleets had lobbied against the rise since it was announced in the Budget, arguing that it would put further strain on an already fragile economy.
Labour vowed to force a House of Commons vote on the issue if it was not withdrawn, with shadow chancellor Ed Balls claiming the tax rise would worsen the recession.
He said postponing the rise until January at the earliest could be funded by closing tax loopholes and dipping into the £500m left over from the Olympics budget. In June the average cost of diesel fell 5.6p to 140.8p a litre month-on-month, according to Arval, while petrol was down 5.3p to 135p.
