Britain may be on the brink of a triple-dip recession due to a stalled recovery in the manufacturing sector that was supposed to kickstart sustained growth.
GDP shrank 0.3% in the final quarter of 2012. Britain was hammered in particular by a 1.8% contraction in its production and manufacturing sector, AFP reports.
If the economy also shrinks in the current first quarter, Britain will enter its third recession since the 2008 global financial crisis.
Finance minister, George Osborne, says he's sticking with original plans to make Britain more competitive and create more jobs.
He said the latest data was "a reminder today that Britain faces a very difficult economic situation."
"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," Mr Osborne said in a statement.
Britain is not a member of the euro zone but has been affected by the neighbouring bloc's ongoing financial crisis.
Activity has been hit hard also by deficit-slashing austerity measures from the nation's Conservative-Liberal Democrat coalition government.