The UK is staring down the barrel of another recession after the economy shrank more than expected at the end of last year.

Declines in the manufacturing and construction sectors drove a 0.2% fall in GDP in the final quarter of 2011, according to an initial estimate by the Office for National Statistics (ONS).

George Osborne has been forced to acknowledge a grim picture of declining growth and rising unemployment for the UK over the coming years.

The Chancellor insisted he was still on course to meet his key targets of eliminating the UK's structural deficit within five years and getting national debt on a downward course as a proportion of GDP by 2015/16.

The jobs market is facing a "slow, painful contraction", with firms scaling back decisions on whether to recruit more staff against a background of global economic "turmoil", a new report has warned.

The Chartered Institute of Personnel and Development (CIPD) predicted that the employment situation will get worse for the rest of the year, while medium-term prospects were no better.

Families facing the biggest squeeze on household incomes since the 1930s should expect some respite from high inflation next year, Bank of England governor Sir Mervyn King said.

Sir Mervyn said price pressures within the UK still remained "subdued" and weakening demand should see prices fall further, despite CPI inflation hitting a three-year high of 5.2% in September.

Downing Street has reiterated that the 50p income tax rate on top-earners is a "temporary measure", as a group of leading economists called on Chancellor George Osborne to scrap it at the earliest opportunity.

But Government figures poured cold water on prospects of swift action on the 50p rate, with Communities Secretary Eric Pickles - a leading Cabinet advocate of abolition - acknowledging that it can be dropped only "when the time is right".