The organisation's latest State of Trade Survey reveals expected workloads and enquiries for London SMEs dropped by 4% in Q3 compared with the previous quarter. In Scotland, expected workloads and enquiries dropped by 6%.
On a UK-wide scale, 41% of SMEs are predicting rising workloads in the coming three months, down from 48% in the previous quarter. 82% of builders believe that material prices will rise in the next six months, while 61% of small builders are still struggling to hire carpenters and joiners, while 59% are struggling to hire bricklayers.
More than half (58%) of SMEs expect salaries and wages to increase in the next six months.
However despite overall workloads falling by 3% to +21 in Q3, the net balance for overall workloads remained positive for the 18th consecutive quarter.
Barry Mortimer, Director of FMB London, said slowing growth among the capital's smaller building firms is "clear evidence" material price hikes and skills shortages are starting to affect the market.
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"This is important as just as London is the engine room of the UK economy, construction is the engine room of the capital's economy," he said.
"Furthermore, without a fit and able construction sector, the Mayor of London will not be able to deliver the homes, schools, roads and rail projects that we so desperately need."
Mr Mortimer added the slowdown could also stem from the fact that London is particularly reliant on EU migrant workers.
"We know that some European tradespeople are already choosing to leave the UK following the depreciation of sterling that occurred after the EU referendum," he continued.
"Finding that their wages are not worth as much as they were pre-June 2016, thousands of workers are either returning home or finding work in another country where the currency is a little stronger.
"Given that 61% of construction SMEs are currently struggling to hire carpenters and joiners, it's a stark reminder that the Government can't afford to put a foot wrong in terms of its post-Brexit immigration system. Unless Ministers put in place sensible transitionary arrangements, and develop an immigration system that works for London's construction industry, the capital could see its many exciting construction projects grind to a halt."
Gordon Nelson, Director of FMB Scotland, stated growth among Scotland's construction SMEs has now slowed down for two consecutive quarters.
"Scottish firms are facing considerable constraints through the growing scarcity of skilled tradespeople," he said.
"Our latest research shows that 61% of construction SMEs are struggling to hire carpenters and joiners and half of all firms are having difficulties hiring site managers. When you pile on material prices increases, following the EU referendum last summer, there is considerable upwards pressure on small building firms and it's taking its toll on growth."
"Given these headwinds and the slower growth we are seeing, it is more important than ever that the industry has the structural support it needs. We eagerly await further details of the Scottish Government's new Scottish National Investment Bank. We would encourage the Scottish Government to ensure that the new bank is set up in such a way that it can effectively support the needs of construction SMEs."
(LM)
