The UK IT industry faces a potential skills shortage, according to a new report commissioned by Microsoft and sponsored by Intellect, the British Computer Society and City University in London.

Developing the Future 2007 (PDF) sets out the key challenges facing the UK's IT industry over the coming years.

The UK is in a strong position to build on the progress that has been made so far, according to the report, as long as the country can increase the number of IT graduates.

"The DtF 2007 report paints a picture for the UK that is exciting and inspiring, but profoundly challenging," said Gordon Frazer, managing director of Microsoft UK.

"In our very near future, the shape of the economy and society will have changed dramatically and I believe the UK has the potential to adapt to take advantage of these changes.

"We have an opportunity to harness the innovation, talent and entrepreneurship that exists, but we need to face up to some serious challenges. Chief among these is filling the growing skills gap in the technology sector before it becomes chronic."

Only 30 per cent of graduates from IT related degrees chose to enter careers in the IT professions in 2005/6. The remainder chose or found alternative activities or jobs outside IT.

Around 10 per cent went on to study for higher degrees or other qualifications, 10.3 per cent are unemployed, 4.3 per cent are engaged in other activities and 3.8 per cent are not available for employment, study or training.

Of those finding employment six months after graduation, a proportion may be classified as IT workers within other industry sectors based on the current government careers taxonomy and some may be in interim jobs.

The question facing the UK is whether there will be enough people working in the primary IT sector to develop the tools, applications and technologies needed in other sectors that are heavily IT dependent, such as financial services.

The report also pointed out that, despite numerous industry initiatives, only around 20 per cent of the UK's IT workforce is female.

If the IT industry is to fill the skills gap, it needs to recruit from the entire pool, not just the male half. Only 17 per cent of those undertaking IT-related courses are women.