The official figures from the ONS this morning spooked the financial markets as the overall economy shrunk by 0.5% from last October to December with construction falling 3.3%.

Construction output has come crashing down from the 9% surge in the second quarter and 3.9% rise in the third quarter of last year.

Industry leaders warned that even worse is to come because the recovery has stalled even before the full brunt of spending cuts have hit home.

If the next set of figures for the first three months of 2011 also record a decline then construction will be officially in recession.

Construction Products Association Chief Executive, Michael Ankers, said: “After 2 quarters of relatively strong growth in the middle of 2010, these latest figures show that the economic recovery has stalled even before the full impact of the public sector spending cuts is felt.

“Although the poor weather in the last few weeks of the year undoubtedly had an impact on the construction industry, as it did in 2009, it is clear that the recovery in the construction industry has already petered out and that private sector growth is not coming through strongly enough.

“The Construction Products Association is forecasting that construction output will fall a further 2% in 2011 and this will inevitably hold back the pace of recovery in the wider economy.

“It is essential that the government does more to encourage a private sector led recovery by accelerating the measures it is taking to reduce the burdens on business, encouraging the banks to make more money available for viable business investment, and implementing the measures it is committed to for improvement to the infrastructure of this country.

“It also needs to ensure that its broader policy objectives on localism help stimulate rather than hinder economic growth.”

CECA Director of External Affairs Alasdair Reisner said: “This morning’s shocking Gross Domestic Product figures should act as a wake-up call, providing a stark reminder of the critical role that construction plays in the UK economy.

“It is clear that a downturn in activity in the industry has an impact that is felt far beyond the site fence, acting as a brake on the country’s ambitions to return to growth.

“While there have clearly been seasonal factors that have played a role in the reduction in construction output last quarter, the results also reflect a continuing negative outlook that has been reported by companies from across the industry.

“Sadly there seems to be little in the way of confidence that there will be a turnaround in the industry’s prospects in 2011, and with the full effect of public sector cuts yet to feed through, there may very well be further bad news to come in future quarters.”