Contractors reacted to the slowdown by cutting jobs as fears over public sector spending cuts intensified.

Sarah Ledger, Economist at Markit and author of the report said: “Growth of the UK construction sector slowed during July.

“However, this was not wholly unexpected, and likely represented a normalisation from the strong rates of expansion recorded in Q2.

“Perhaps more concerning was the continued impact on confidence that impending public sector spending cuts and the scheduled VAT rise have had.

“This was highlighted by the solid reduction in employment indicated during the month, as construction companies continue to review costs carefully.”

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: “Although we’ve seen a marked slowdown in growth for the UK construction sector, the warning bells aren’t ringing yet and an immediate double-dip seems unlikely.

“Instead, we’re finally starting to see the growth in activity tail-off and normalise at a slightly slower rate.

“Nonetheless, despite rises in new orders and output, it’s telling that contractors accommodated the slowdown by making immediate job cuts – reaffirming how tight things still are.

“In the face of ongoing public sector spending cuts and steep input price inflation, it’s really going to be a case of slow and steady wins the race.

“The industry has to come to terms with a much altered, post-recession landscape, where full recovery may take some time yet.”