The UK has fallen deeper into recession than previously thought, confirming that the country has officially entered a double-dip. Data from the Office for National Statistics showed that the economy shrank faster than previously estimated between October and December last year, with a decline of 0.4%.

The economy also contracted for a second quarter between January and March this year, with the unchanged -0.3% estimate confirming that we are in recession for the second time in four years.

A drop in construction and industrial output in the first three months of the year outweighed the biggest rise in government spending in almost seven years, scuppering chancellor George Osborne's hopes of a recovery led by the private sector. Construction fell at its fastest pace in three years, down 4.9%, while industrial output was down by 0.5%. Government spending, meanwhile, rose by 1.9%.

The ONS said the crucial measure of household consumption fell 0.1% after increasing 0.5% in the final quarter of 2011. On an annual basis, it dropped by almost 1%. Household consumption makes up about 60% of the UK's GDP, so a decline in spending has a huge impact on the economy.

The household saving ratio fell to 6.4% in the first quarter from 6.9% in the previous quarter, suggesting consumers may have been dipping into their savings for the little spending they have been doing.

Separately the ONS published data showing the UK's current account deficit widened more than expected to £11.2bn in the first quarter from £7.2bn in the previous quarter. The deficit was much larger than expectations of a £9bn shortfall, and represents some 2.9% of GDP.

The current account balance measures the difference between the UK's total exports of goods, services and transfers – which include money flowing to and from international institutions like the EU – and its total imports of them. A deficit means there is a net outflow of funds from the UK. But economists said there was some cause for optimism. PMI surveys improved in the first quarter and employment showed a modest gain late last year.

Chris Williamson of Markit said: "For employment to increase at a time that the economy is contracting is unprecedented in recent history and puts a huge question mark over the GDP data. If this is a recession, it is possibly the healthiest one we have ever seen in terms of business optimism and job growth."

David Tinsley of BNP Paribas also found cause for consolation. "I don't think it is all doom and gloom. The underlying position in final demand is a little bit stronger than the GDP figures would suggest. Provided we don't get a disorderly outcome in the eurozone, we should get considerably better growth next year, assisted by some of the new policy instruments announced by the Bank of England and the Treasury."

Under emergency measures announced earlier this month, banks will receive cut-price funds provided they pass on the benefits to their business customers. This new "funding for lending" scheme could provide an £80bn boost to loans to the private sector within weeks and alleviate growing fears of a second slump since the start of the financial crisis in 2007.