The bellweather Markit/CIPS Construction PMI index recovered 49.2 in August from 45.9 in July.
It is still below the neutral 50 mark but companies are now more optimistic about future trading with many feeling Brexit fears were overdone.
Mike Chappell, Global Corporates managing director for construction at Lloyds Bank Commercial Banking, said: “The past month has seen a number of the bigger players in the sector report robust results with a relatively upbeat outlook, suggesting there may have been less negative impact from the EU referendum result than was originally feared, at least at the top of the market.
“This data provides further reassurance, although the headline reading still remains below 50, which separates growth from contraction.
“The order books of larger firms, many of which benefit from diversified revenue streams, appear to be in good shape, while several have either increased or restored their dividends.
“That said, anecdotal evidence indicates those further down the chain – such as mid-tier contractors and SMEs – are less bullish and more likely to adopt a ‘wait and see’ approach.
“For many businesses, the focus remains on the short-term. For one thing, most will be following closely the various data for a true reflection of the health of the economy.
“Firms are also thinking about the chancellor’s upcoming Autumn Statement when they will learn whether their hopes of an increase in infrastructure spending are to become a reality.”
Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMI, said: “The downturn in UK construction activity has eased considerably since July, primarily helped by a much slower decline in commercial building.
“Construction firms cited a nascent recovery in client confidence since the EU referendum result and a relatively steady flow of invitations to tender in August.”