London: Britain's worst recession since World War II is over, official statistics confirmed Tuesday, but the economy remains in the recovery room after managing only feeble growth of 0.1 percent in the fourth quarter.
Economists had expected the Office for National Statistics to report growth of 0.3 percent or better, but it was still the first rise in GDP following an 18-month downturn.
"The increase in output was due mainly to increases in distribution, hotels and restaurants and government and other services," the agency said.
Output of manufacturing and other production industries, which have had the deepest slump, rose by 0.1 percent, as did the services sector.
GDP had been expected to be supported by strong pre-Christmas sales as shoppers tried to beat an increase in the sales tax on January 1, as well as by a government-sponsored vehicle scrappage program, the revival of exports and a slow recovery in the massive services sector.
Britain was hit particularly hard by the global credit crunch because of its huge financial sector, propped up by the government's multibillion-pound bailout of major banks, and higher levels of personal debt among consumers. Like the US, it also faced a collapsed real estate bubble.
The fallout cost the country 100 billion pounds ($160 billion) in lost output as GDP shrank 6 percent over the 18 months of the downturn. Some 1.3 million people were laid off, unemployment rose as high as 7.9 percent and around 50,000 families had their homes repossessed.
"The British economy has had the economic equivalent of a heart attack," said Vince Cable, economic spokesman for the Liberal Democrats.
"It is still fragile. It is still dependent on artificial money creation, on enormous government deficit, the banks are still not working properly," said Cable, a professional economist before being elected to the House of Commons.
"All these things are going to have to be sorted out before we can talk about any kind of meaningful recovery."
Britain is the last of the G-7 countries to exit recession, with the French and the German economies returning to growth last summer.
Signs of recovery should ease some of the pressure on Prime Minister Gordon Brown, whose governing Labour Party is trailing in opinion polls heading into a campaign for a general election that must be held by early June.
Concerns remain over the strength of the recovery, in particular the threat of a "double-dip" recession as savage spending cuts loom and the Bank of England begins to move benchmark interest rates up from the current record low of 0.5 percent.
Many economists had previously forecast a return to growth in the third quarter of last year, but output fell by 0.2 percent.
Tuesday's data is the first of three readings of the fourth quarter GDP. The first reading is made with around only 40 percent of the data that goes into the third and final reading.
The accounting firm Ernst & Young warned that British companies should expect a bumpy recovery.
"Growth in the first part of the year could sit in contrast with economic stagnation or even a second dip later on," said Keith McGregor, restructuring partner at Ernst & Young.
"The events in Dubai at the end of 2009 amply demonstrate how quickly situations can still deteriorate," he added. "The coming years could contain more of these shocks."
The Bank of England's Monetary Policy Committee will take the GDP figures into account next week when it considers whether to extend its program of purchasing assets to boost the money supply.
The 200 billion pound program is due to be completed by early February, just before the bank's rate setting meeting on February 3-4.
First Published: Tuesday, January 26, 2010, 16:22