Deep recession

The pound hit a 23-year low against the dollar on Friday, while London's FTSE 100 index of leading shares slid under 4,000 points.

Nick Kounis, an economist at Fortis, a European bank, said: "This report confirms that the economy is in deep recession and adds to the case for further aggressive Bank of England policy easing."

The country's central bank has already cut borrowing costs by 350 basis points since October, and economists predict the bank will slash interest rates again next month.

Analysts say it could be years before the British economy recovers.

Howard Archer, an economist at Global Insight, a forecasting body, said: "The economy entered recession with an almighty bang in the fourth quarter of 2008.

"Our current forecast is for UK GDP to contract by 2.9 per cent in 2009, with declines in output occurring through all four quarters.

"This would be the sharpest contraction since World War II. Furthermore, we see GDP only flat overall in 2010 as recovery develops very gradually."

Unemployment

A sharp fall in services and production activity had helped drive a decline in the economy, the ONS said.

The services sector shrank by 1.0 per cent in the fourth quarter, its fastest contraction since 1979, while manufacturing output fell by 4.6 per cent.

On Wednesday, Germany, Europe's biggest economy, said it would suffer its worst recession since 1945 this year, with half a million more people expected to lose their jobs.

In Britain, the unemployment rate has jumped to a decade-high 6.1 per cent with nearly two million people out of work.