The U.K. economy contracted more sharply than expected in the final quarter of 2012, the country's statistical agency said on Friday.

Gross domestic product (GDP) in the fourth quarter fell by 0.3 percent over the third quarter. The average estimate among economists was for a drop in output of 0.1 percent.

The U.K. economy grew 0.9 percent in the third quarter. Economists are concerned about a triple dip recession, with the U.K. economy seen contracting in the first quarter of 2013 as well.

On Thursday, Britain's Chancellor of the Exchequer told CNBC in Davos that the government would stick to its austerity plan, despite criticism from the IMF.

Household costs soar by £4,000

Soaring prices on items such as food, utility bills and transport are eroding family budgets by around £331 a month, far outweighing a marginal rise in incomes.

While many of the price increases seem small in isolation - at £20 - £30 a month on average – they have added £3,972 a year to household expenses since November 2011, according to the latest Aviva Family Finances Report.

The average household income has risen over the same period by just £60 from £1,983 to £2,043.

To cope, families are being forced to make huge cutbacks, with many rationing their car use to save money.

Debts are also mounting with the average family now owing a record £11,101 in unsecured lending.

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