Latest figures from the Glenigan Index show an increase in private housing work at the start of 2010 petered out with the value of site starts down 2% on a year ago.

The dramatic fall in social housing confirms the fears of specialist contractor Connaught which put out a profit warning last month highlighting Government spending cuts in the sector

Glenigan economics director Allan Wilen said: “Whilst social housing starts are likely to remain under pressure over the coming months, a renewed recovery in private housing starts is anticipated at the end of the year as housebuilders capitalise on gradually improving market conditions.

“Private housing had previously been a source of optimism, as returning private sector confidence encouraged developers to invest in new work.

“However, this quarter’s dip in project starts highlights the fragility of the recovery. Poor household earnings growth and rising unemployment, combined with limited mortgage availability are expected to restrict the pace of recovery in new house sales and project starts during the remainder of 2010.”

Retail project starts were down 23% in the three months to July compared to a year ago. This is expected to be a temporary blip in what has generally been a growth sector this year. The flow of office and industrial projects remains weak.

Community, health and education schemes have all suffered as departments review their spending programmes. Overall the Glenigan Non-Residential Index for the three months to July was 22% down on a year ago.

Despite less public spending over the next few years, a more widespread strengthening in private sector activity is anticipated over the two year forecast period supported by renewed private sector confidence and investment.

The Glenigan Civil Engineering Index for the three months to July was 39% on a year ago, after a weak start to the year.

The Index was again boosted by a marked increase in new utility projects, such as water, energy and waste schemes. In addition, the value of underlying infrastructure project starts has increased by third, offsetting a recent drop in work.

In particular growth was boosted by two railway projects in the South East of England with a combined worth of £160m.

Wilen said: “Regionally only the East Midlands, Wales and the North East saw significant rises in the value of new work compared to a year ago while the flow of new work dropped by a quarter or more in London, Northern Ireland, the East and South East.”

The overall Glenigan Index for the three months to July showed a 13%  fall on a year ago to 78.1, the lowest seen this year and significantly below the 2006 Index base.