UK GDP contracted by 0.5% in the last three months of 2010, shocking economists who had predicted growth of between 0.2% and 0.6% and sending sterling into freefall.
It was the first contraction in growth since the third quarter of 2009 and comes as a blow to the UK's prospects for economic recovery.
Business services and finance, construction and distribution, hotels and restaurants were the largest contributors to the negative growth.
The ONS blames bad weather for the decline and says without it, growth would have been flat.
"We should emphasise this assessment of the effect of the bad weather is the best we can make it at this stage, but is still inevitably uncertain," the report says.
The economy grew by 0.7% in the third quarter of 2010 and 1.7% for the same quarter the previous year.
On the news, sterling plummeted 1.26% against the dollar to 1.5786, and 0.9% against the euro to 1.1617.
Jeremy Cook, chief economist at World First, says the figures are shocking and have had a major impact on the pound.
"Sterling has been seriously destabilised by these figures and traders are now abandoning all hope the Bank of England will raise interest rates sooner rather than later.
"This opens the door to ‘stagflation' a combination of high inflation and stagnant growth which would see the economic recovery snuffed out.
"To be honest, although this is only a preliminary figure, this is a real shocker."
‘Important to have an anchor’
Lack of innovation for solutions
Some 2,000 consumers affected
Achievements, charity work and other happy snippets