The depth of the contraction appears to contradict government figures that predicted a 0.75%-1.25% decline in GDP for 2009. Alistair Darling has indicated these forecasts may be revised.

Economists predict that the UK economy will record a 2.1% contraction this year with some predicting that the recession will last into 2010, rendering it one of the longest recessions in history.

Unemployment in the UK is predicted to increase to more than 3m over the next two years as the recession bites.

John Wright, national chairman of the Federation of Small Businesses (FSB), said: "Small businesses are being hit just as hard as big businesses in these difficult economic times as these worrying figures show. We cannot afford to lose our vibrant small and medium sized business sector.

"As we officially move into recession we must not forget that small businesses are the engine room of the economy and are actually in a key position to generate new jobs and avoid further redundancies."