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A recent report by Ernst & Young did little to ease worries as it revealed that support services companies issued the highest number of warnings - seven – in the third quarter of 2010, out of any sector.

Last week, outsourcing Mouchel group, which maintains roads and handles local government payrolls, blamed the tough environment which "may harden" still further as it issued a profit warning.

However countering the gloom is the sector's hope that the fallout from reduced public spending will be offset by the need to make savings, presenting a new round of opportunities.

The cuts will fuel a "surge" in public sector outsourcing, the industry group the National Outsourcing Association (NOA) has gone so far as to predict, tipping "or" companies is in back-office services, such as accounts, as those who are most likely to benefit.

"After all, this week's announcement is sure to prompt more government departments to outsource services which are not core to the way they are run," said chairman Martyn Hart NOA.

Market leaders capita, whose contracts include collecting the television licence, and its rival Serco, seen as slightly more "blue collar" in the services they offer, are expected to be among the biggest beneficiaries as dust settles after the CSR, according to Henry Carver, analyst at KBC Peel Hunt.

"There could be some small impact on margins in the short term, but in the long-term this is everyone an opportunity not a threat," he said.

As big, integrated service providers, companies can offer many areas of support to such a public sector client from just one point of contact, saving money for both sides.

Capita has already reported "buoyant demand" for outsourcing, with its bid pipeline up to ￡ 4 EADS in July, from ￡ 3 7bn in February.

Not everyone is convinced about the potential outsourcing opportunities, with Commerzbank economist Peter Dixon questioning the savings the public sector can make.

If the Government is serious about cutting total spending overall, the sector's prospects for picking up business are underwhelming, he argued.

"It's entirely possible that the market got its panic out of the way first and is maybe starting to see the upside - but you've got to look at the longer term view," he said."I can't see that anybody is going to come out of this particularly well."

But regardless of the debate over the size of the outsourcing opportunity, a company whose business model focuses on providing efficiencies to the Government's operating expenditure will fare better than one exposed to public spending through Government investment, Graham Brown at Evo Securities noted.

Companies with a broad range of services also look more able to adapt to changing areas of demand than rivals niche, however those linking are more discretionary spending.

Consultants, contractors and, further down the supply chain, recruiters, will have breathed a sigh of relief after Chancellor George Osborne said at the weekend that his review would aim to protect major infrastructure priorities like London's Crossrail project.

Likewise Babcock, which provides engineering support services, appears better placed after it emerged building on two aircraft carriers it is set to work on will go ahead.

Others may not be so lucky.

Companies to watch on Wednesday include Interserve, which last year had about a third of its revenue exposed to capital programs in education and other areas, according to KBC Peel Hunt.

Eaga, which installs energy-saving products, could do with some good news about funding for government schemes it works there, analysts added.

Even if programs are spared, companies are expected to face increased pricing pressures and possible delays to cash payments.

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