Britain's economy shrank by 0.7% in the second quarter of 2012, the sharpest fall since early 2009.

Finance minister George Osborne said the country had "deep-rooted economic problems".

The figures confirmed that Britain is mired in its second recession since the financial crisis. This is the third consecutive quarter of economic contraction.

Sterling hit its lowest in nearly two weeks against the dollar after the data, and government bond prices rallied on speculation that the Bank of England may have to provide more economic stimulus than expected.

Earlier this month the BoE has announced another £50 billion programme of gilt purchases with newly created money to soften a grim economic outlook, but today's data is likely to add to market speculation that it may cut interest rates later this year.

Cost of Queen's Diamond Jubilee

Economists had been expecting an extra public holiday to mark Queen Elizabeth's Diamond Jubilee to reduce output by around 0.5%, so the latest figures suggest the economy is also contracting on an underlying basis.

The ONS said it was too early to provide an estimate of the Jubilee effect, but warned that this and very wet weather added "uncertainty" to its calculation of economic activity towards the end of the quarter.

Output in Britain's service sector, which makes up more than three quarters of GDP, contracted by 0.1% in the second quarter after growing 0.2% in the first quarter of 2012.

Industrial output was 1.3% lower, while construction, which accounts for less than 8% of GDP, contracted by 5.2%, its biggest drop since the first quarter of 2009.

Overall second-quarter GDP was 0.8% lower than a year earlier, the biggest decline since the last three months of 2009.

Most economists had expected a return to growth in the third quarter, as the London Olympics offer a one-off boost through ticket sales and visitors spending.

Last week the International Monetary Fund slashed its growth forecast for Britain by more than those for any other advanced economy, and warned the government and BoE that they will need to rethink their approach if the economy fails to pick up by early next year.