Luis Suarez opened the scoring in the second half but England was on course for a draw after Wayne Rooney equalized from close range late in the game.
But with six minutes remaining, Suarez pounced on Steven Gerrard’s mistake in midfield and netted his second to leave England last in Group D without a point after two games, following defeat to Italy in the opener.
“We're more than disappointed, we're devastated," the England coach told ITV. "We believed we could do enough to get a result in this game and having worked so hard to counter that first goal in the first half, to get back to 1-1, we fully believed we'd go on to win or at least draw. So to concede the second goal was an unbelievable blow. I don't quite know what to say at this time.
“It's a goal that we don't expect to concede. We felt we dealt with the Uruguay attack well for very long periods in the game, but we came up against a strong defensive unit ourselves. I felt we did enough to get the draw we needed — but we didn’t.”
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England now needs to beat Costa Rica in its final group game to stand any chance of reaching the knockout phase, and can only then climb out of Group D if Italy wins its remaining two games.
And Hodgson acknowledged a lack of cutting edge in front of goal has cost his side in the tournament so far.
“[Suarez’s] first goal was exceptionally good, Cavani's cross and a fine header. Second, he was a bit fortunate to get free but when he did he made no mistake. We know what he can do,” he said. “After opening five minutes of the opening second half, they were nowhere near our goal and we were near theirs a lot — but it doesn't matter how often we get close, it's about how often you put it in the back of the net — and we didn't do that enough in either game.”