The British economy has escaped from its longest double-dip recession since the 1950s, rebounding by 1.0% in the third quarter with the help of the London Olympics, official data showed on Thursday.
British gross domestic product (GDP) grew at the strongest quarter-on-quarter rate for five years in the July-September period thanks to one-off factors such as the Olympic Games -- and after output had contracted for three quarters.
Market expectations had been for the economy of Britain, which is not part of the eurozone, to have expanded by 0.6% in the third quarter compared with the second after falling into a double-dip recession in late 2011.
British Prime Minister David Cameron welcomed the data that gave a boost to the London stock market and sterling, but warned against complacency amid global economic headwinds.
"There are always one-off figures in all of these announcements, but I think they do show an underlying picture of good positive growth," Cameron said.
He added: "There is still much to do, but these GDP figures show we are on the right track, and our economy is healing."
Finance minister George Osborne echoed the cautious sentiment, saying that recent "weak data from the eurozone were a reminder that we still face many economic challenges at home and abroad."
The ONS added that output had been flat in the third quarter compared with a year earlier, and in a blow to government hopes of maintaining a recent upturn in employment, US car giant Ford on Thursday said it would shut two British plants.
The data provided the first estimates of British third-quarter GDP, leaving them open to potential revisions in the coming months.
Analysts said that on Thursday's data reduced the chances of the Bank of England pumping out more new cash next month to stimulate the economy, as part of its quantitative easing (QE) policy.
"The UK was long overdue some good news on growth. This reinforces our long-held view that the Bank of England will not extend QE next month but can afford to wait before easing policy again," HSBC said in a note to clients.
Britain escaped from a deep downturn in late 2009 but fell back into recession at the end of 2011.
GDP, or the combined value of produced goods and services, contracted by 0.4% in the second quarter of this year after shrinking by 0.3% in the first -- and by 0.4% in the final quarter of 2011.
"GDP was estimated to have increased by 1.0% in Q3 2012 compared with Q2 2012," the office for National Statistics said in a statement.
"The largest contribution to the increase came from the services sector. There was also an increase in activity in the production sector. Activity in the construction sector fell."
One-off factors boost return to growth --
Growth was lifted by one-off factors, including the London 2012 Olympic Games and rebounding activity after an extra public holiday for Queen Elizabeth II's Diamond Jubilee in the second quarter, the ONS said.
"Not only did the UK pull out of its double-dip in the third quarter, but the 1% quarterly rise in GDP was a fair bit better than expected," said Vicky Redwood, senior economist at the Capital Economics research group.
"Admittedly, much of this reflected temporary factors. We think that the reversal of the Jubilee effect probably added about 0.5%, the Olympic ticket sales added 0.2% and there may have been a wider Olympic boost.
"But even accounting for this suggests that underlying output managed to rise by a small amount -- an improvement on recent quarters. It won't be plain sailing from now on, though. There are still a number of constraints on the recovery."
Britain was facing considerable difficulties ahead, not least from tight credit conditions and worries about the impact of the debt crisis in the eurozone, a key trading partner.
Other major headwinds included rising inflation on higher energy and food prices, an uncertain jobs market and ongoing austerity measures from Britain's coalition government aimed at slashing a record-high deficit.
"Our economy desperately needs an injection of confidence. But this is no time for complacency and wishful thinking," said Ed Balls, economy spokesman for the opposition Labour party.
"Today's figures show that underlying growth remains weak and that our economy is only just back to the same size as a year ago -- 12 months of damaging flatlining."