The June reading dipped below the neutral 50 mark for the first time since April 2013 as the index registered 46 compared to 51.2 in May.
Delayed spending decisions in the run up to the EU referendum hit the result with only 20% of those buyers quizzed spoken to post the Brexit decision.
Buyers reported a steep decline in residential work and a fall in commercial work for the first time since May 2013.
David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said: “Gloom and fragility descended on the sector with the steepest drop in new orders since December 2012.
“Caused by the continuing insecurities in both the global and UK economies and the hesitancy shown by clients to commit to projects before the EU referendum, overall activity was at its frailest for seven years.
“ The housing sub-sector took the most significant hit, with the biggest fall in activity since December 2012.
“Commercial building was a close second showing a similarly disappointing result, with a drop in activity not seen since February 2013.
“Delivery times, employment and crucial supplies were also impacted by the ongoing uncertainty.
“ Though the majority of responses, around 80% were received before the Brexit result, the continuing ambiguity and indecision has flung the sector into unknown territory.
“Firms will likely look towards any remedies the Bank of England and the UK Government can offer if the situation worsens post – Brexit.
“The only glimmer of light through the brickwork is the rate of decline was not as sharp as that experienced during the last recession.
“But, with business confidence at a three-year low, and purchasing activity at its lowest level for six and a half years, this is likely to offer little comfort. ”
Professor Noble Francis, Economics Director at the Construction Products Association, said: “This was a very sharp fall in the Markit/CIPS for construction activity in June overall and particularly in private housing and commercial, two of the largest sectors.
“In terms of what we have seen within the industry, commercial activity in central London still continues apace and there is also still a lot of activity in cities like Birmingham and Manchester.
“The uncertainty prior to the referendum, however, has had an impact on new contracts signed, especially for smaller projects.
“In terms of housing, private house building continues but we are seeing evidence that this same uncertainty has had an impact on new housing starts.
“Infrastructure activity was broadly flat, which is not surprising as it has a longer lead in time, so the majority of work occurring in this sector is on large projects based upon contracts signed in 2014 and 2015.
“Our own surveys in the months before the vote showed that uncertainty around the event was dampening business confidence and investment across the industry.
“Though today’s PMI figures were largely generated before 23 June, it will serve to highlight the impact of uncertainty on UK construction whilst government formulates a plan ahead.”
