The construction sector has shrunk by a further 2.5% in the past three months, according to the latest GDP figures.

The figures were announced as part of the latest UK gross domestic product statistics, which showed that the overall economy grew by 1% in the third quarter of 2012.

The news has prompted many in the industry to call for government action to help boost the sector and stimulate construction products across the country.

Jonathan Hook, construction leader at Price Waterhouse Coopers, said: "The decline in construction output of 2.5% is disappointing but not unexpected. The industry is feeling the impact of cuts to the government's capital programme. Government has got the message about stimulating projects and the potential impact on economic growth and there are also increasingly positive signs from the private sector, but in my view it will probably be a year before the sector starts to see growth again."

Hook's view is supported by the latest Construction Industry Forecasts, which predict construction output will fall by a further 1.4% in 2013, with the sector returning to growth in 2014. This decline would mean a reduction in construction activity of almost £8.5 billion over these two years, undermining the ability for construction to help the UK’s economic recovery.

Noble Francis, economics director at the Construction Products Association, said: "Construction is currently experiencing sharp falls, both for orders and output as a result of severe cuts in the government's capital spending, coupled with a very subdued private sector recovery. Construction has already lost £4.5 billion of work this year as the industry returned to recession for the third time in five years.

"Prospects for the industry going forward are bleak. Although growth is expected in 2014, the next 12 to 18 months are likely to cause considerable pain to an industry that is already reeling from a prolonged decline. Considering how important construction is to the economy as a whole, and how many times government has stated that construction is essential for recovery, these latest forecasts will do nothing to improve confidence in the UK economy.

"With the Autumn Statement less than two months away, it is imperative that government prioritises its spending by switching from current spending to capital investment for essential housing and infrastructure, as well as sorting out the long overdue model for drawing in private investment into construction. Otherwise, rather than driving economic growth in the near term, construction will keep the UK economy flat-lining."

The CPA Forecasts also expect total housing starts for 2012 to reach just 118,000, which is fewer than half the number needed to meet the number of new households being created. Public sector construction work is likely to fall 19% between 2010 and 2014, and private sector construction work has been forecasted to fall 4% in 2012, but rise by 15% between 2012 and 2016.

Meanwhile, the latest State of Trade survey from the Federation of Master Builders (FMB) has found workloads from small housebuilders have slumped. An alarming 39% of respondents to the survey reported a decline in private new housebuilding workloads in the third quarter of the year, and 40% predict a further decline in the last three months of this year.

Brian Berry, chief executive of the FMB, said: "There is little doubt that we are in the midst of a serious housing crisis with fewer than half the number of new homes being built to meet current demand. The FMB survey results show that the SME construction sector remains in deep trouble. This time last year we had hoped that we would be seeing at least some signs of recovery on the horizon by now. However, it is becoming clear that this situation is not going to resolve itself any time soon. With the industry in such a fragile state the government must think very carefully about introducing any new burdens on the house building sector. We want to help the Prime Minister achieve his goal of building more houses in Britain and so we are making the case that now is not the time to be pushing on with policies designed during the economic boom. Instead real progress is required on deregulation."

Despite these sobering figures, the latest RICS Construction Market Survey reveals a growing optimism among chartered surveyors. While construction firms have seen their margins continue to deteriorate in the last quarter, a net balance of 10% more surveyors expect margins to stabilise off the back of potentially growing workloads. This is the first positive reading since late 2007.

With optimism edging upwards in terms of future workloads and margins, so too did expectations for employment levels in the sector, as 25% more surveyors expect an increase rather than a decrease in jobs for construction workers over the coming year.

Simon Rubinsohn, RICS chief economist, said: “With the raft of measures recently put in place by the government, it appears that there is some optimism that things could improve over the next 12 months in terms of workloads, profits and jobs. If this comes to pass, it will be an extremely welcome lift for both the construction sector and the wider economy."