Brexit: what will be the impact on UK infrastructure?

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

In or out? The debate has been going on for months, now the decision has finally been made. One thing is for certain, this decision is now likely to mean years and years of uncertainty as we unwind our involvement in the European Union and seek to neogtiate new trade deals with nations around the world.

What will happen to current infrastructure projects?

Any short term impact of the Brexit decision is unlikely to have a major impact on projects which are currently underway. It is possible that the major on-going projects in the UK such as Thames Tideway, Crossrail, etc. will be stable enough to continue through to completion. The UK's energy projects are under regulation which will mean they are protected to a certain degree from economic volatility. This will of course depend on post Brexit agreements made by the government, none of which can be predicted at this moment in time.

Future Investment into projects

Investors crave certainty, so what impact will the UK's decision to leave the EU have on infrastructure investment in the UK? The 'out' decision will have both short and long term impacts on UK infrastructure. According to a recent survey of infrastructure investors active in the UK market carried out by S&P Global Ratings, the majority (71%) believe that Brexit, or UK exit from the EU, will halt investment for infrastructure; mostly in the two years after the vote. Why is this? It is likely that investors will wait to see what impact the UK exiting the EU will have on the country and its economy. It is also expected that investors will delay decision making in order to see what happens to the value of the pound. If the pound depreciates, this could raise the cost for overseas investors making investment an unattractive option. In addition those investors with assets in the UK may struggle to dispose of them to overseas investors.

Opportunity?

There is clearly some nervousness and uneasiness around what the 'out' decision now means for the UK and the risks this presents. However, for the brave investors out there this may present an opportunity to capture higher returns on projects, which may make this attractive for some investing in the sector. The UK has a significant infrastructure pipeline and the Government has pledged £100bn by 2020 – 2021 according to the National Infrastructure Delivery Plan. This public money will need to be matched by private investment in order for the delivery of key UK projects. It may be likely that the government will increase incentives for investors in order to keep attracting inward investment.

Only one thing is certain, only time will tell what the real impact of the exit decision will be on UK infrastructure.