By Marcus Leach

The downturn in the construction sector continued in September as official figures reveal a 13.1% drop from a year ago.

The Office for National Statistics' figures have shown further big drops in new building by the commercial and public sectors (excluding infrastructure projects), both of which were down by a fifth from a year ago.

House building saw a 5% bounce in the month but remains 12% below a year ago. Separately, the UK's trade deficit narrowed in September to £2.7bn.

Steve McGuckin, UK managing director of the global programme management consultancy Turner & Townsend, said that this data, and the continued decline of the sector, is a great worry.

"With output tumbling to its lowest level in 13 years, it's almost as if the last decade's construction boom never happened," he said.

"The economy as a whole might be on the road to recovery, but the construction sector is stuck in reverse.

"The fragility of business confidence has taken a toll on private commercial construction. At 17.4% down on the same time last year, it has now fallen past even the low it reached in the 2009 recession.

"Infrastructure is showing some signs of life, returning to growth after falling earlier in the year. But it represents just 18% of new work, and the industry as a whole is still walking wounded.

"The decline in public sector non-housing work comes as no great surprise as the government's austerity measures kick in. But at nearly a fifth down on Q3 2011, the drop has been precipitous.

"Many in the industry had hoped that if they could just limp through 2012, next year would be better. But with the sector continuing to contract, the optimists are being forced into a drastic rethink.

"Yesterday Balfour Beatty, the country's largest construction firm by sales, was forced to issue a profits warning after its order book shrank by 4% in Q3.

"If well-run and diversified construction companies like that are struggling, life is becoming all but unbearable for the industry's mid-sized firms.

"As the big players are being forced to pitch for smaller projects, those in the "squeezed middle" are having to slash margins to negligible levels - and in the most extreme cases, some firms are pitching for work at below cost, simply to keep cash-flow coming in.

"Such desperate measures are clearly unsustainable, and the industry as a whole is having to adapt to a tough environment which is still showing no sign of improving.

"With construction slipping from no growth to painful contraction, even stagnation is starting to look attractive."

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