The sharp rise in wage rates caused by the shortage of labour in the South-east has been reduced by the influx of workers from eastern Europe, according to research by the RICS.

Its construction survey for the first quarter found that three in four firms reported they had been able to hold down the wages of manual workers because of the arrival of the east Europeans.

One in three believed that salaries in the professional disciplines had also been held down since the enlargement of the European Union in May 2004.

Overall, the study found that 28% of the industry had been affected by shortages of skilled workers, down from 38% a year ago and 44% in the first quarter of 2004.

RICS economist David Stubbs said that London and the South-east reported the lowest skills shortages in the last two years.

However, the skills shortages in Scotland, the north of England and Wales have not declined.Stubbs added that 2006 was likely to be a better year for contractors than 2005. He said: "Rising commercial property values are spelling larger profits for developers, propelling a strong rise in workloads for the sector."