Construction output in July fell at its fastest rate since June 2009, according to the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers' Index® (PMI®).
The July data was 45.9 in July, down fractionally from 46.0 in June and below the 50.0 no-change threshold for the second month running.
Anecdotal evidence suggested that economic uncertainty following the EU referendum was the main factor weighing on business activity in July, especially in the commercial building sector.
The latest reading reflected the steepest fall in commercial building for over six-and-a-half years, alongside a drop in civil engineering activity for the first time in 2016. Residential construction also declined at a solid pace in July, but the rate of contraction eased from June's three-and-a-half year low.
Some overall demand had been relatively resilient in July, especially for house building and infrastructure projects and there were also reports suggesting that demand patterns had been more resilient than expected, with some firms linking new enquiries from international clients to exchange rate depreciation.
Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI® , said: "July's survey is the first construction PMI compiled entirely after the EU referendum result and the figures confirm a clear loss of momentum since the second quarter of 2016, led by a steep and accelerated decline in commercial building. Reduced volumes of new work to replace completed projects contributed to a fall in employment for the first time in just over three years.
"Latest data showed that confidence regarding the year-ahead outlook eased further following the EU referendum, but only to a level last seen in April 2013 and one that is still well above the record lows experienced in 2008/09."
David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: "Though a marginal drop in the index compared to last month, the sector's downhill course is a seriously disappointing development, with purchasing activity falling for the second consecutive month, and following another drop in new orders.
"The index also recorded the lowest business confidence since April 2013, and the fastest overall fall in output since June 2009. Commercial building bore the main brunt of this downturn with the largest decrease in activity for six-and-a-half years. "Material costs were driven upwards at the fastest pace since March 2015, with the weaker pound largely to blame, and some firms reported lower stock levels to maintain cash flow. Job falls were in evidence, but more as a result of a close watch on margins and natural shedding than a shrinking of operations.
"With a reduction in new work for the third month in succession and one of the fastest falls since early 2013, this hesitancy to commit was largely attributed to the continued hazy gloom of uncertainty as clients became more cautious, and deferred orders. The picture is still unclear around whether this direction is fixed for the coming months or is a short-term reaction and the aftershock of the UK's referendum decision."