GROSS domestic product shrank by 0.3% in the fourth quarter of 2012, compared with a 0.9% rise in the previous three months, the Office for National Statistics said today

The downturn represents a sharp reversal of the 0.9% 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.

It also means that a further decline during the first quarter of 2013, in which economic activity has already been badly hit by the cold snap, would push the UK economy into an unprecedented “triple dip” recession – with a recession defined as two consecutive quarters of contraction.

The Office for National Statistics (ONS) said the fourth quarter figure meant that economic output as a whole remained flat in 2012.

However, the fourth-quarter drop is worse than expected, with most economists having been forecasting a drop of 0.1%.

It deals a blow to recovery hopes after the UK bounced back from the longest double-dip recession since the 1950s in the third quarter.

Today’s fourth-quarter figure is a preliminary estimate and subject to revision, but the scale of the fall suggests that figure will remain negative.

The figure increases the pressure on Chancellor George Osborne at a time when all three major ratings agencies have the country’s prized AAA status on negative outlook.

A Treasury spokesman said: “The official forecast was that the UK economy would contract in the last quarter of 2012 so this figure is not unexpected. It confirms what we already knew – that Britain, like many European countries, still faces a very difficult economic situation.

“It underlines what the Chancellor said at the autumn statement and the governor of the Bank of England said this week: while the economy is healing, it is a difficult road.”

Mr Osborne said he would not “run away” from the problems facing the UK economy: “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.”

The ONS said the UK had recovered only half of the fall in GDP seen since the start of the 2008 recession, with output still 3.3% lower than its pre-recession level.

The biggest drag on GDP came from the production and manufacturing sector, which saw output fall 1.8% quarter-on-quarter, according to the ONS.

Within this sector, mining and quarrying suffered the biggest drop in activity since official records began, down 10.2%, due mainly to the shutdown of the Buzzard oil field in the North Sea amid extended maintenance work.

The powerhouse services sector, which accounts for 77% of the economy, saw activity grind to a halt in the fourth quarter due to the absence of the Olympics boost in the previous three months. The only bright spot was the construction sector, which delivered a 0.3% rise in output.

However, employment continues to remain surprisingly resilient, with figures this week showing that almost 30 million adults were in a job in the quarter to November, up by more than half a million on the previous year.

The Bank of England and Treasury-backed Funding for Lending scheme is also starting to help boost credit to under-pressure consumers and businesses.

John Cridland, director-general at 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.”

Phil Orford, chief executive of the Forum of Private Business, said: “It is a difficult time for many businesses operating when an economy isn’t growing, and clearly there will be some continuing tough economic times in the first half of 2013.

“Whilst it is disappointing to see an estimated 0.3 contraction in the economy these are preliminary figures and we will hold judgement until the fuller figures come out.

“In the meantime the positive news is that unemployment continues to fall and the Government has a number of business friendly projects that can be sped up, including planning law changes and infrastructure spending.

“Despite this bad news we feel confidence is growing among small business owners.”

And Graeme Leach, chief economist at the Institute of Directors, said: “If the recent slight pick-up in money supply growth can be sustained, the UK economic outlook in 2013 will be better than people expect, so hold back on the doom and gloom.”

However, Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said: “There are no positive takeaways from today’s first estimate of GDP in the final months of last year.

“Even assuming some unwinding of activity from the Olympics boost in the previous quarter, this still leaves no real signs of underlying growth in the economy.”

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%, 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.”