The UK's economy grew by 0.5% in the third quarter of 2011, official statistics showed on Tuesday morning.
The figures were higher than expected growth of 0.4% and an increase from the second quarter - in which the economy grew by 0.1%.
George Osborne is due to face MPs in the House of Commons this afternoon where he is likely to be grilled on the growth figures and the Greek referendum.
On Monday David Cameron said the coalition would not deviate from its deficit reduction plan, despite slowing growth and growing unemployment.
Writing in the Financial Times the prime minister said the government will instead focus on infrastructure investment and “credit easing” in order to restart the economy.
Yet the FTSE 100 has plunged by 2.2% following news that Greece plans to hold a referendum on a proposed eurozone bail out.
European markets also reacted badly to the surprise move, with the the Germany's Dax falling by 3.5% , the Cac-40 in Paris by 3.4% and the stock market in Athens plunged by 7%.
The decision by Greek Prime Minister George Papandreou to hold a referendum is reported to have shocked eurozone leaders, who last week agreed to cut Greece's debts by 50% and hand over £112bn more in rescue loans.
Papandreou said: "We have faith in our citizens, we believe in their judgment and therefore in their decision".
"All the country's political forces should support the [bail-out] agreement. The citizens will do the same once they are fully informed."
The precise date of the poll is yet to be announced, but it is expected to be held in January. There have been widespread and violent protests in Greece over the austerity measures imposed on the country by its government.
See below for a slideshow of political reaction to the growth figures.
"We have to take these figures one step at a time, and this is a positive step, the economy is growing, and that is a better number today than many people were forecasting even this morning. "Now, of course, the British Government has got this difficult journey from the debts of the past, it is a journey made more difficult by kinds of things you see, for example, today, in the markets, because of the situation in the eurozone, but we are determined to complete this journey on behalf of the British people, so we have the jobs and growth, and the prosperity that everyone wants to see."
"Today's figures confirm that the British economy has been bumping along the bottom for the past twelve months - flatlining when we need strong growth to get unemployment and the deficit down. "As the ONS has said today, growth of just 0.5 per cent over the past year since the Chancellor's spending review - compared to 1.6 per cent in the US - is a significant slowdown from the 2.6 per cent we saw in the previous twelve months when we were starting to recover from the global financial crash. "The fact is that our recovery was choked off well before the eurozone crisis of recent months by spending cuts and tax rises which go too far and too fast "Already, the stagnant growth and higher unemployment that George Osborne's failing policies have delivered mean the government is set to borrow £46 billion more than they planned. After today's figures, the Chancellor will now have to downgrade his growth forecasts for a fourth time later this month - and revise up again his borrowing forecasts. "These are really worrying times for families and pensioners struggling to pay the bills, young people out of work in record numbers and businesses on the edge. The combination of sluggish growth, rising unemployment, falling confidence and the latest surveys indicating a contracting manufacturing sector and depressed business confidence mean this is no time for complacency from the government. "We now urgently need Labour's five point plan for jobs and growth to help struggling families, get young people back to work and support small businesses. The reckless thing to do is plough on regardless with a plan that isn't working, the cautious thing to do on basis of all the evidence of this significant slowdown is to act now."
"This was meant to be the quarter when the UK economy started bouncing back, but that hasn't happened. You have to go back nearly a century to find a slower recovery from a crash. "What's worse is that this is economic self-harm. The government's deep austerity programme has choked off what was always going to be a slow and difficult recovery. No doubt ministers will try and blame the Eurozone crisis, but these figures date from before the recent difficulties. "The government must listen to the growing demands for a Plan B that puts growth and fairness first."
"The evidence just keeps on mounting that the government has got it very wrong on our economic recovery. Public sector cuts are not being offset by private sector growth, and all across the country, people are really struggling. "Our research shows that many families are thousands of pounds worse off as a result of the VAT increase, indirect tax and benefit changes, and frozen pay at a time of high inflation. Now the threat of a pensions hike could take hundreds of pounds more out of their pockets. This £4 billion tax on public sector workers is economic suicide - we need families to be spending more - not frightened to go to the shops. "How bad will things have to get before the government sees sense and takes action to stave off economic meltdown?"
"In the last few weeks, the Prime Minister and the Chancellor have been keen to blame all the UK's economic woes on the developments in the euro zone. The unfortunate reality is that we are only just beginning to see its effect here. The near stagnation of economic activity in the UK began in the fourth quarter of last year - well before the euro zone crisis reaching boiling point. "The slowdown in the UK is the result of a mix of domestic factors, particularly the Chancellor's tough fiscal stance (which has knocked confidence in the private sector about future levels of demand), and global factors such as higher oil and food prices "In terms of employment, a recession now looks inevitable. The International Labour Office warned yesterday that the world economy was on the verge of a new and deeper jobs recession. In the latest three months (to August), employment in the UK was 178,000 lower than in the previous three months. With the outlook for output growth deteriorating, it is hard to see how the UK can avoid falls in employment in the third and fourth quarters of this year - a jobs recession."
Britain is stuck in a paradox of thrift. We - members of the public, the companies we work for - have noticed that the economic news seems bad and so we are being as sensible and cautious as possible. The problem is, when we all think like that, the prospects get even gloomier; the government can't pay off its debt if we're all trying to pay off ours. Today's growth figures confirm the situation we are in. Up 0.5% is better than negative, but nowhere near what is needed to keep government debt plans on track. Indeed their forecasts presumed that consumers would be spending more; not so. And if people aren't wanting to buy, businesses won't bother to make, regardless of any grandiose ambition to rebalance the economy. More on Labourlist
"Growth of 0.5% is an unexpected piece of goods news for the economy. It is particularly encouraging to see growth in business services, which will be key to the recovery, although growth in the production sector of the economy remains relatively slow. "But this good news does not disguise a labour market which has been in freefall over recent months, and it is worrying to see government services making the most significant contribution to growth. "The UK is far from out of the economic danger zone. The greatest threat is of stagnation or low growth over the next year or two, which would most likely lead to further increases in unemployment, and would make it much harder for the government to control the budget deficit. "These figures should spur the government on to address structural problems in the UK economy, and to put in place the conditions for much stronger growth over the medium-term. Economic recovery requires decisive action to unlock finance for fast-growing firms, to stimulate mass investment in research and innovation, and to address the UK's underlying trade problem."