The UK's software development industry will suffer the same decline as the country's manufacturing sector unless action is taken to tackle the skills shortage, according to a report released today.

A study conducted by Microsoft, Lancaster University Management School and the British Computer Society found that those involved at the start of the UK software industry three decades ago are now moving towards retirement, and there are simply not enough graduates being trained to take their places. 

Perhaps the most worrying figure is that the UK is turning out just 20,000 new IT graduates each year.

The study highlighted a 50 per cent drop in applications for computer related degrees in the past five years, with 47 per cent fewer systems engineering students and 60 per cent fewer software engineering students.

Even if the numbers of students recovers to previous levels, there will still not be enough to meet the demand for software developers.

"The UK faces an acute and growing shortage of high-end software skills," said Matthew Bishop, senior director of Microsoft's Developer Platform Group.

"With the same passion that young people enjoy the music players and computer games which the industry develops, they need to realise that their own futures can lie in creating the software that enables those experiences."

The report called for industry, academia and the UK government to work together to raise the profile of the industry and encourage more students to take computer science as a degree subject.

The study also found that insufficient numbers of UK software developers are being trained in the higher level skills that will be in demand in the future.

In comparison, Asian and Eastern European countries are producing hundreds of thousands of relevantly trained graduates every year.

The Office for National Statistics (ONS) puts the current value of software production to the UK economy at £20bn, up from £2.5bn in 2003. 

The ONS calculated that the industry employs one million workers, which includes commercial developers and in-house software developers.

The Microsoft-backed study suggested that 200,000 basic IT jobs will be off-shored by 2010.