Government spending cuts and a tough new procurement regime in Whitehall are having an impact on IT vendors, with the overall UK public sector software and IT services market will continue to decline this year, according to analyst TechMarketView.

TechMarketView says the market in 2012 is set to be worse than 2011, with a predicted 3.1 percent decline in market size.

The analyst's UK Public Sector software and IT services Market Trends & Forecasts report outlines the main factors affecting the market and highlights "where suppliers will find rare growth opportunities".

The UK public sector market declined in 2011 by 2.3 percent in actual terms to be worth £11.5 billion. All segments - apart from the police market - fell into negative growth. The education sector was the worst market to be operating in during the year as it declined by 9 percent.

The latest report predicts that the UK public sector market will decline by a compound annual rate of 0.6 percent in real terms through to 2015, when its worth in 2010 prices will be £1bn less than in 2010.

"For suppliers the market will remain tough throughout our forecast period to 2015,” said Georgina O’Toole, an analyst at TechMarketView. “With government organisations facing increasing pressure to cut budgets while continuing to transform public service delivery, suppliers face the challenge of convincing government organisations of the value that ICT can bring in terms of saving money from the broader budget."

O'Toole warned however that there was a risk that ICT budgets will be cut "at the expense of innovation".

The central government market - consisting of Whitehall departments and agencies - will suffer the most drastic decline in market size over the four year forecast period. TechMarketView said that market will decline by 10.7 percent in 2012 (worse than 2011) and by a compound annual rate of 2.4 percent between 2011 and 2015.