Labour leader Ed Miliband has accused the prime minister of "smug complacency", telling MPs the general public is "fed up" of hearing David Cameron's "excuses" over the economy.
But Mr Cameron said the coalition government was "taking responsibility for clearing up the mess" left by the previous Labour government.
The clash at prime minister's questions on 25 January 2012 came as official figures showed the British economy shrank by 0.2% at the end of last year.
Mr Miliband opened his questioning by asking the prime minister what had "gone wrong with his economic plan".
Mr Cameron admitted that the recent figures were "disappointing but not unexpected".
He told MPs they reflected the "overhang of debt", squeezed household incomes and the eurozone crisis.
"This is the year we have to take further action to get our economy moving, but the most important thing is to have a credible plan to get on top of the deficit which has given us the lowest interest rates for over a hundred years," Mr Cameron declared.
But Mr Miliband hit back, telling MPs that people were "fed up" and accusing the government of "total arrogance".
"You and your chancellor are but the byword for self-satisfied, smug complacency and that is the reality," the Labour leader said.
The prime minister insisted his ministers had "not one ounce of complacency", highlighting the measures the government is taking to boost the economy, such as cutting corporation tax and investing in apprenticeships.
Labour had only one answer, he said: "To deal with a debt crisis by borrowing more and adding to debt."
But Mr Miliband continued his attack, asking Mr Cameron: "When will you face up to the fact it is your policies that are failing our country?"
Later in the session Mr Cameron confirmed that senior civil servants will meet this week to decide whether Sir Fred Goodwin should be stripped of his knighthood.
The former head of the Royal Bank of Scotland was awarded his title for "services to banking" in 2004, but pressure has been mounting for it to be withdrawn over his role in the bank's subsequent collapse.
The work of the Honours Forfeiture Committee is usually kept under wraps but the prime minister told MPs he expected it to sit in the coming days.