Britain is in the longest double-dip recession for more than 50 years, as gross domestic product shrank by 0.7% between April and June, official figures revealed on Wednesday.
The fall in GDP came as a shock to the City - where predictions had been for a fall of around 0.2%.
Chancellor George Osborne said: "We all know the country has deep-rooted economic problems and these disappointing figures confirm that."
Labour’s shadow chancellor Ed Balls said: "These shocking figures speak for themselves. As we warned two years ago, David Cameron and George Osborne’s ill-judged plan has turned Britain’s recovery into a flatlining economy and now a deep and deepening recession.
The UK's most recent double-dip recession was around the miners' strike in the 1970s, but that only lasted two quarters. The current recession is the longest since the Second World War.
Economists have blamed the extra bank holiday for the Queen's Diamond Jubilee, and record amounts of rainfall in April and June.
But the London Olympics are expected to see a return to growth in the current quarter, according to the office of the National Statistics.
Mr Balls added: "Thank goodness the Olympics will give our economy a much-needed shot in the arm.
"But this short-term boost is not enough – we need a plan B now to get the economy moving again and radical reforms to set Britain on a new course for jobs, growth and long-term prosperity.
"The longer the Chancellor refuses to act, the heavier the price our country will pay.”
The figure is the ONS's first estimate and may be revised in coming months.
Mr Osborne added: "We're dealing with our debts at home and the debt crisis abroad. We've made progress over the last two years in cutting the deficit by 25% and businesses have created over 800,000 new jobs.
"But given what's happening in the world we need a relentless focus on the economy and recent announcements on infrastructure and lending show that's exactly what we're doing."
Howard Archer, the chief UK and Europe economist at IHS Global Insight said: "This really is a very nasty surprise indeed.
"GDP contraction of 0.7% quarter-on-quarter in the second quarter is far deeper than anyone expected and is a very disappointing and worrying performance."
Trade Union Congress General Secretary Brendan Barber said:“Ministers cannot just repeat the same old excuses – Europe, bank holidays and the previous government – for the economic mess they are presiding over.
"They need to change course as their policies are causing permanent damage to our economy."
Tony Dolphin, chief economist at the Institute for Public Policy Research, said "immediate steps" were needed, including "temporary tax cuts and a boost to infrastructure spending not offset by cuts elsewhere.
"This would mean borrowing more in the short-term."