Britain emerged today from the longest recession in modern history, but the economy grew by only 0.1 per cent between October and December — far below expectations of a 0.4 per cent rebound.
Today’s figure is only the first of three readings of GDP for the fourth quarter by the Office for National Statistics (ONS).
The reading is so low that a downward revision could leave the country still in recession.
Joe Grice, the chief economist for the ONS, noted that recent revisions up or down had been between 0.1 per cent and 0.2 per cent.
Britain is the last big economy to emerge from a full-blown downturn. The United States, Japan, China, Germany and France all climbed out of recession in the third quarter, between July and September, last year.
A change in GDP could emerge as the country gears up for a general election, which must be held before June 3, although Gordon Brown is facing calls for a poll as early as March.
he ONS will publish its revised reading on February 26 and a final figure in March.
The Government will have to battle even harder to sustain the recovery.
The main drivers of the minimal growth in the economy came from the retail and motor sector, both of which have been propped up by government intervention.
Colin Ellis, European economist with Daiwa Capital Markets, said: "These sectors will have been boosted by the pre-announced VAT rise in January and the car scrappage scheme — suggesting that, on an underlying basis, the economy only stagnated at best."
It has raised fears over the strength of the recovery as the VAT rise and the dire weather this month are likely to have hurt high street spending, and the scrappage scheme is scheduled to come to an end soon.
Sterling tumbled almost a full cent against the dollar on the figure. The pound fell 0.6 per cent on the day to $1.611.
Jeremy Cook, chief economist of foreign exchange broker, World First, said: "This is a nightmare for sterling. The run of good data for the UK economy has definitely ended... I would not be surprised if sterling continued to fall against most of its competitors throughout the remainder of the trading day and week.”
The pound also lost ground against the euro, with the euro rising from 86.75p before the figures were released to 87.45p.
In 2009 the economy fell by 4.8 per cent, the fastest pace of decline in a single year for 88 years, and more than in any other 12-month period since the Great Depression of the 1930s.
Britain has been in recession for six quarters. The technical definition of a recession is two consecutive quarters of negative growth.
Alistair Darling said that the economy was on the path to recovery, but he was cautious.
“I’ve always said that because of all the uncertainty around we should be very cautious,” the Chancellor said.
“There’s a lot of uncertainty around the world — there will be further bumps along the road, there’s no doubts about that.
“I think we are now on a path to recovery. I am confident that the steps we have taken have put us on the right path.”
The International Monetary Fund (IMF) today revised up its figure for British GDP growth from 0.9 per cent to 1.3 per cent for 2010, in line with the Treasury's own forecast for 1.25 per cent growth this year.
However, it places the UK among the stragglers in the world economy, with the US expected to grow by 2.7 per cent and Japan by 1.7 per cent.
French and German GDP will rise by 1.4 per cent and 1.5 per cent respectively in 2010, the IMF forecasts.
There is a rosier picture in 2011, with the IMF predicting that the UK economy will grow by 2.7 per cent, up from a previous forecast of 2.5 per cent.
But this falls far below the Treasury's forecast for 3.5 per cent growth, which has already attracted criticism from economists for being overoptimistic.
"Despite of the revisions, the recovery in advanced economies is still expected to be weak by historical standards, with real output remaining below its pre-crisis level until late 2011," the report read.
George Osborne, the Shadow Chancellor, said: “After this great recession, any signs of growth are welcome. But, these very weak growth figures show that Gordon Brown’s Government left us badly prepared for the recession and badly prepared for the recovery.
"We urgently need a new model of economic growth that includes a credible deficit reduction plan that keeps mortgage rates low, creates jobs and doesn’t choke off recovery.”
Howard Archer, the chief European and UK economist for IHS Global Insight, said: "This is another desperately disappointing GDP release. While the UK officially exited recession in the fourth quarter of 2009, it could only crawl out.
"This reinforces our suspicion that recovery will be gradual and prone to losses of momentum."
It also added to the likelihood that the Bank of England would keep interest rates at an historic low of 0.5 per cent, at least until late this year.
Mr Brown warned yesterday that the country was still in danger of tumbling back into recession if a Conservative government prematurely withdrew the economic stimulus.
He said: “Policymakers in the United Kingdom must remain vigilant. That is why we are all agreed around the world that we must reduce our deficits steadily, according to a plan, but that we must do nothing this year which would put recovery, growth and jobs at risk.
“The biggest mistake we in Britain and individual countries could make would be to withdraw now from the supportive actions we need for growth and jobs.”
David Cameron, the Conservative leader, who has promised to hold an emergency Budget if the Tories are elected, said that it was time for Labour to “do the right thing”, and accused the Government of "moral cowardice" in failing to deal with the country's budget deficit.
“Our recession, the great recession, is the longest and deepest since the war and coming out of recession does not mean that our debt crisis is over,” he said.
“In fact, far from it: Labour’s debt crisis is now the biggest threat to our recovery, so we will only get this recovery right if we start right now on a proper debt reduction plan.”
He added: “The Government’s promise to halve the deficit in four years has, frankly, failed to convince those who we need to have confidence in Britain’s economic future.”
In a reference to Mr Osborne’s proposal to cut tax credits and Child Trust Funds for the middle classes, Mr Cameron spoke of the need for action to show they were serious in intent.
“That means some reduction in public spending plans in this coming financial year,” he said.
Brendan Barber, general secretary of the TUC, said: "These figures show just how fragile the economy is. With the threat of a double-dip recession looming large, it would be madness to cut public spending now."