The UK economy contracted by 0.3 per cent in the final quarter of 2012, according to official figures, increasing the likelihood of an unprecedented triple-dip recession.
The Office for National Statistics has said economic output as a whole remained flat in 2012.
The fourth-quarter drop is worse than expected, with most economists forecasting a drop of 0.1 per cent.
The economy would have to contract this quarter as well for it to be back in recession, but hopes of a rebound are fading after a snow-hit start to 2013, which some estimate cost Britain more than £500m a day in lost output.
The fourth-quarter downturn represents a sharp reversal of the 0.9 per cent recovery seen in the third quarter, when output was fuelled by one-off factors such as the Olympics and as the economy clawed back activity lost during the Queen’s Diamond Jubilee holiday.
Read more: Faisal Islam on Economics
Bank of England Governor Sir Mervyn King had already warned that the quarter would be “considerably weaker”, while the IMF believes the UK contracted by 0.2 per cent overall in 2012. It also expects expansion of just 1 per cent during this year.
Friday’s figures from the ONS represent the initial estimate of GDP and are subject to revision over subsequent months.
But the run of gloomy economic indicators increases the threat to the UK’s prized AAA rating, with all three major ratings agencies placing the country on negative outlook.
There is little further hope for a consumer-led spending boost after official retail sales figures showed a 0.1 per cent fall in volumes in December.
The first official estimate of fourth-quarter GDP will not include overall household consumer spending figures, which will be taken into account in the second estimate.
Consumers and firms have been hit hard by Chancellor George Osborne’s austerity drive, coming at a time when Europe – the UK’s largest trading partner – has been crippled by the eurozone debt crisis.
There have been increasing calls for the government to consider a so-called “plan B” to focus on supporting growth as the economy struggles.
Shadow chancellor Ed Balls accused prime minister David Cameron and Mr Osborne of being “asleep at the wheel”.
Mr Balls also called for a change of strategy from the chancellor: “As the IMF has warned again this week, we need a change of course in the budget with policies to kick-start our flatlining economy.
“A plan B now should include a compulsory jobs guarantee for the long-term unemployed and a temporary VAT cut to boost family incomes and our struggling high streets.
“We should also bring forward infrastructure investment including building thousands of affordable homes and establish a British Investment Bank to boost lending to small businesses.
“The longer David Cameron and George Osborne cling on to their failing plan the more long-term damage will be done. They must finally listen and act to kick-start this economy.”
But Mr Osborne has insisted repeatedly that the government is taking the correct action of concentrating on tackling the deficit first.
On Friday he told Channel 4 News’s Faisal Islam that he was determined to tackle the “deep seated” problems affecting the UK economy.
“These problems were many years in the making, there is no magic solution, and by the way I think the British people understand that sometimes better than the political classes,” said Mr Osborne.
He added: “It requires hard work and perseverence and tackling these problems head on and that is precisely what I am determined to do.”
Unions were critical of the figures with one leading figure describing the government’s economic strategy as a “complete disaster”.
Business leaders were less critical, saying economic momentum would build later in the year, although some admitted there were no positive messages to take from the new data.
TUC General Secretary Frances O’Grady said: “Today’s figures confirm our worst fears that the chancellor’s austerity plan has pushed the UK economy to the brink of an unprecedented triple-dip recession.
“We are now midway through the coalition’s term of office and its economic strategy has been a complete disaster. The economy has grown by just 1 per cent, real wages have fallen, and the manufacturing and construction sectors have shrunk. We remain as dependent on the City as we did before the financial crash.”
John Cridland, director general of the CBI, said: “After a difficult year, the UK economy has ended on a disappointing note.
“We think growth will continue to be fairly flat through the winter but momentum will gradually build later in the year, as the global economy picks up a little and confidence lifts.”