The rate of employment in the construction sector declined sharply between May and June as activity in the sector reduced again, according to data from the Ulster Bank Construction Purchasing Managers' Index.

It also showed a sharp decline in purchasing activity, with both declines attributed to the completion of existing projects and a lack of new orders.

However, despite the decline, optimism at Irish construction firms was at its highest level since January 2007.

The index, based on a survey of construction companies, showed a reading of 43.4 , up from the reading of 42 in May. Any reading below 50 signals contraction in the sector, while a reading over 50 signals growth.

The rate of job cuts accelerated over the month, and was the fastest so far in 2013.

The rate of contraction in new business was much slower than in May.

Simon Barry, Ulster Bank’s chief economist in the Republic of Ireland, said while respondents continue to experience very challenging conditions, “some forward-looking elements of the survey offered some encouragement about future prospects.” These included the new orders index being at its highest level since March 2012.

“And some optimism surrounding potentially better order levels boosted confidence, with sentiment regarding the 12-month outlook rising to its highest level since early 2007.”