By Marcus Leach

The full extent of the government's cuts is starting to be felt in the construction sector as output fell 6.3% in May compared to the same time last year.

Figures released by the Office for National Statistics today (Friday) show that between March and May, a more robust reading, the drop was steeper, down 7.4% from the same period in 2011.

There was a 22% drop in new public works, which was the main driver behind the overall sector fall.

"What began as a dip has become a dive. What's not clear yet is whether the industry has reached a turning point," Steve McGuckin, managing director of the construction and programme management consultancy, Turner & Townsend, said.

"Output is still a shadow of what it was this time last year, and last week's PMI survey showed construction activity falling at the fastest rate for two and half years.

"But while confidence is still weak, month-on-month output did rise slightly in May. That said, the improvement on April's atrocious figures is hardly an achievement, and the quarterly trend is still down.

"With public sector construction down around 22% on this time last year, the impact of the government's austerity cuts is clear.

"There have been some signs of life in the private sector, and many still hope that it will ride to the rescue of a construction industry that has been hit hard by the decline in public spending. But these figures clearly show that it hasn't happened yet. It's time for George Osborne to look at stimulating demand in this crucial sector.

"The pain isn't being spread equally over the regions either - with South East England proving more resilient than almost everywhere else.

"The post-Olympics "legacy" projects will continue to provide work over the next few years, even if they will be priced much more realistically than the stadia that were commissioned at pre-crash prices.

"Elsewhere competition for work is so intense that some contractors are making "suicide bids" - offering to work at below cost price just to keep cash-flow going.

"Demand is still there, if sporadic and patchy. The major players are surviving, even if their margins have got steadily tighter.

"Niche players who excel at what they do are also bearing up well, but it's the middle ground - non-specialists whose services are commoditised - who are most at risk."

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