Activity in the construction industry declined in July, with a drop in housebuilding and a fall in employment in the sector, according to the latest Ulster Bank Construction Purchasing Managers Index (PMI).

Total construction activity in July registered 47.5 on the PMI index, compared with 46.8 in June. Any rating below 50 represents a decline in activity.

Reports from firms suggested that weaker new order volumes and planning delays contributed to the second successive month of decline, Ulster Bank said.

The survey also found that staffing levels in the construction sector fell for the third month in a row.

Firms said they expected a lower level of activity in the sector in July 2008. This is the first time since July 2003 that construction companies have been pessimistic about the outlook for activity, Ulster Bank said.

"The overall negative viewpoint of constructors was linked to recent interest rate rises and weakness in the housing market," the survey stated.

While housing activity declined in July, with a rating of 33.8, demand in both the commercial and civil engineering sectors increased.

Commercial activity showed a reading of 52.7, while civil engineering was 51.6.

Pat McArdle, chief economist at Ulster Bank, said it was clear that construction companies in Ireland had scaled back their housing operations in response to weakness in the market.

Housing completions are expected to decline by about 30 per cent this year due to concerns about the economy and rising interest rates.

Mr McArdle said a slowdown in the pace of housebuilding was inevitable.

"This is a necessary adjustment that we had to make," he said. "It's never an easy adjustment to make but that's what's happening. Housebuilding was pared back to the bone once the housing market began to ease."