The UK market for IT contractors is unlikely to see any recovery before 2006 without any "next big thing" technology to drive demand among corporates for project services, according to a new report.

The UK IT Staff Agency (ITSA) Market 2003 study by analyst Ovum Holway says that while demand for contractors has stabilised and there are signs the downturn is beginning to bottom out, it is "far too early" to talk about a recovery.

Last year was the worst on record for the ITSA market, which shrank by 23 per cent and the latest report predicts this year will not be much better with a 17 per cent decline to £2.2bn – equivalent to the market size in 1996 and less than 60 per cent of its peak in 1999.

In fact, Tola Sargeant, the author of the report, predicts the ITSA market will never return to its former glory.

"The ITSA industry has had its heyday and reached maturity. We do expect the market to stabilise somewhat from 2003 and the pace of market shrinkage to slow, but the days of high double-digit growth have been consigned to the history books," she said in the report.

The outlook for contractors and recruitment agencies looks pretty bleak, according to the report with unemployment remaining high, salaries and fee rates falling and corporates still pushing on with pay cuts.

"In general terms, downward pressure on salaries will continue as IT skills lose their premium, and competition from offshore IT services firms depresses wages," the report said.

The market for permanent staff looks even worse and the report said there is no evidence it has even "bottomed" yet.

A separate report by management consultancy Adventus claims a lack of appropriately skilled IT staff is the single biggest factor behind why so many major projects fail.

The survey of 100 managers found that IT projects within large organisations generally deliver less than two-thirds of the promised benefits, and 81 per cent blamed failure on the lack of skilled staff.

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