David Cameron has been accused of being asleep at the wheel after figures showed the UK economy heading towards an unprecedented third recession in five years.

Opposition parties, business leaders, economists and unions lined up to urge the Chancellor to change tack, warning his growth strategy is not working.

Experts also warned the news would further imperil the UK's prized AAA credit rating, which ministers have praised for keeping borrowing rates low.

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But Mr Osborne defiantly refused to adopt a Plan B, saying he would not run away from challenges confronting the country.

Official figures showed the UK economy shrank in the last three months of 2012, thanks to disruptions to North Sea oil production and a manufacturing slowdown.

If the economy contracts in the first three months of this year too, the UK will officially enter a "triple dip" recession.

Labour shadow chancellor Ed Balls said the Prime Minister was "asleep at the wheel", adding: "The longer David Cameron and George Osborne cling on to their failing plan the more long-term damage will be done. They must finally listen and act to kick-start this economy."

But speaking from the World Economic Forum in the Swiss ski resort of Davos, Mr Osborne said: "We have a reminder that Britain faces a very difficult economic situation, a reminder that last year was particularly difficult, that we face problems at home because of the debts built up over many years and problems abroad, with the eurozone, where we export most of our products, in recession.

"We can either run away from those problems or we can confront them and I am determined to confront them so that we can go on creating jobs."

But there was uproar at pictures of the Prime Minister and Chancellor enjoying a meal in a Davos restaurant after being given the horrendous figures. One eyewitness described the event as "raucous".

Deputy Prime Minister Nick Clegg appeared to add to the Chancellors' woes, admitting there was "some way to go before the recovery really takes root".

His comments came just 24 hours after he said the Coalition Government was wrong to have slashed infrastructure spending in its early months in power.

Chief economist at Markit Chris Williamson said the latest figures banged "another nail in the coffin" of the UK's AAA rating. Andrew Goodwin, adviser to the Ernst & Young ITEM Club, said recent snow also "rings alarm bells" for the economy. "That the disruption has come early in the quarter, in contrast to previous episodes, means there is more scope to catch up this time around," he said. "But the chances of another negative quarter – and a technical recession – are relatively high."

Others warned that even if the UK did not tip back into recession it was not out of the woods.

Tony Dolphin, chief economist at the left-leaning Institute for Public Policy Research think tank (IPPR), said the economy still faced a triple crisis of stagnation, debt and imbalance.

Andrew Sentance, a former member of the Bank of England's monetary policy committee, said the figures showed a sluggish growth phase, which he called "the new normal for the economy".

Scottish Finance Secretary John Swinney welcomed Mr Clegg's admission on infrastructure, but warned more action was needed with fragile underlying growth.

Mark Littlewood, director general at the right-leaning Institute of Economic Affairs think-tank, said "These figures are clearly very disappointing. If the Government does indeed have a strategy for growth, it plainly isn't working."

A triple dip would be the first such recession since official records began. The economy shrank by 0.3% in the fourth quarter last year.