Latest data from the Markit/CIPS Construction Purchasing Managers’ Index posted 49.1 – falling from November’s 51.8.

On the index, a level above 50.0 indicates industry expansion, below indicates contraction.

The fall is being blamed on poor weather conditions because new order growth accelerated slightly. But employment fell sharply, and confidence regarding future business prospects remained relatively weak.

Sarah Ledger, Economist at Markit and author of the UK Construction PMI said: “December PMI data pointed to a month-on-month decline in UK construction activity.

“However, a modest rise in new business suggested that particularly poor weather had acted to reduce activity. Nonetheless, growth has been subdued in recent months, largely due to contractions in residential construction, signalling that business conditions in the sector were not conducive to a large overall expansion in activity.”

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “A disappointing end to the year for the UK Construction sector, as the PMI drops into contraction territory again.

“The overall picture for 2011 is also likely to stay subdued. Yet, confidence about future activity rose in December based on a rise in new orders, despite poor weather, and hopes for a general economic improvement.

“However, this was at a slower pace than the previous month, and it is telling that purchasing managers saw the gradual easing of competition as one of the factors contributing to this.

“A major worry is the situation in the housing market, which suffered its steepest decline in activity for 20 months. Proposed measures to further tighten regulations on mortgage lending may only serve to intensify this worry into a longer, more protracted year of concern.”

Simon Rubinsohn, RICS chief economist said: “The latest CIPS survey suggests the more positive mood that drove recovery in construction output through the second and third quarters of last year now appears to be fading.

“This is broadly consistent with results of the most recent RICS survey of the construction sector where forward looking indicators were generally downbeat and raised the possibility that workloads could drop over the next twelve months, leading to more job losses.

“While poor weather in the final month of 2010 may have contributed to the negative reading in the CIPS survey, the public sector cuts are now also likely to be influencing sentiment.

“Significantly, a flatter trend in construction will put pressure on other parts of the private sector to step up to the plate and support the economy in 2011 as the contribution from the state is reigned back.”