Chancellor George Osborne has vowed not to "run away" from Britain's economic woes amid fresh signs the UK is heading for an unprecedented triple dip recession.
The first official estimate from the Office for National Statistics (ONS) revealed the economy shrank by 0.3% between October and December, slamming the recovery into reverse after the 0.9% growth seen in the previous quarter.
Figures also showed the economy flatlined in 2012 as a whole and experts predict it will not regain its peak level for another two years.
Pressure is now intensifying on Mr Osborne to do more to jump-start the ailing economy in his forthcoming March budget.
Accused by Labour of being "asleep at the wheel", he is facing increasing criticism over his austerity programme and as Britain risks losing its coveted AAA rating after all three major ratings agencies put the country on negative outlook.
Olivier Blanchard, chief economist at the International Monetary Fund, suggested earlier this week that Mr Osborne should slow down his spending cuts, saying now was a "good time to take stock".
Deputy Prime Minister Nick Clegg also appeared to admit the coalition cut spending too deeply when it took power, saying there should have been more investment in infrastructure to support growth.
The fourth quarter decline in gross domestic product (GDP) is worse than the 0.1% drop expected by most economists and it is feared the decline has put the UK on course for the first triple dip since official records began.
Mr Osborne said: "We have a reminder today that Britain faces a very difficult economic situation. A reminder that last year was particularly difficult, that we face problems at home because of the debts built up over many years, and problems abroad with the eurozone, where we export most of our products, in recession.
"Now, we can either run away from those problems or we can confront them and I am determined to confront them so that we can go on creating jobs for the people of this country."
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