The first official estimate of economic growth so far this year has shown that Britain has fallen into a double-dip recession.
The Office for National Statistics ( ONS ) said the UK's economy contracted by 0.2% in the first quarter of 2012.
It follows a 0.3% decline in Gross Domestic Product (GDP) in the final three months of 2011.
The preliminary estimate, which may be revised later, means the UK is back in a technical recession - defined as two quarters of decline in a row.
It is the first double-dip recession since 1975, dealing a heavy blow to the coalition Government.
The data confounded market expectations that the economy would grow by 0.1% in the first quarter from January to March.
The ONS said the fall in GDP was driven by the biggest fall in construction output for three years, while the manufacturing sector failed to return to growth.
Business leaders had warned that a technical recession would hit confidence and could cause businesses to rein in spending at a time when they are being encouraged to invest to stimulate growth.
Chancellor George Osborne said the economic recovery had been slower than hoped, but that there was no scope to ease up on the Government's austerity measures, which some argue are choking off the recovery.
In a statement he said: "It's a very tough economic situation.
"It's taking longer than anyone hoped to recover from the biggest debt crisis of our lifetime.
"The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt."
But TUC general secretary Brendan Barber urged the Government to change its course.
"Austerity isn't working.
"The Government should look across the Atlantic and follow President Obama's alternative that has reduced unemployment and brought growth back to the USA."
The current downturn, however, is expected to be nothing like as severe as the previous recession of 2008/09, which spanned more than a year.
According to the latest ONS figures, the services sector, which accounts for some three-quarters of the economy, saw growth of 0.1% in the quarter, after a decline of 0.1% in the final quarter of 2011.
Retail sales were boosted last month by panic-buying of petrol amid fears of a tanker drivers' strike and a heatwave encouraged people to buy summer clothes.
But the industrial production sector declined by 0.4%, with manufacturing down 0.1% after a 0.7% decline in the previous quarter.
The continued fall in manufacturing will also come as a blow to the Government, which is hoping the sector will lead the recovery.
However, economists have said the ONS's reading of the economy may be too gloomy, as recent industry surveys for both the manufacturing and construction sectors have pointed to growth.
Chris Williamson, chief economist at Markit, said: "The underlying strength of the economy is probably much more robust than these data suggest.
"The danger is that these gloomy data deliver a fatal blow to the fragile revival of consumer and business confidence seen so far this year, harming the recovery and even sending the country back into a real recession."
The ONS's first estimate is done before more than half of the data has been gathered and some economists are hopeful that today's figure will be revised higher in coming months.
But they warn that the economy will continue to struggle amid stubbornly high inflation and rising unemployment, while confidence and exports will be hampered by the eurozone debt crisis .
There are fears that the extra bank holiday for the Queen's Diamond Jubilee will hit the current quarter, and it is not known what impact the Olympics will have in the summer.
Vicky Redwood, chief UK economist at Capital Economics, said even without the fall in construction, "output would have done no better than stagnate" and forecast that GDP will contract by about 0.5% this year.
She said: "The main disappointment was the meagre 0.1% rise in services output - the surveys had pointed to services growth of 0.5% or more.
"Even if the underlying picture is stronger than the official GDP figures show, there is no guarantee that the recent pick-up will continue."
©Sky News
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