Brexit vote has set back UK infrastructure investment

Following the UK's vote to leave the European Union, investment in the country's infrastructure has experienced setbacks, with postponements of some asset sales and a downsizing of other projects, according to ratings agency Standard & Poor's.

The UK has a significant infrastructure pipeline and the government has pledged funding of £100bn by 2016-2021 under the National Infrastructure Delivery Plan. However, for it to be delivered, this public money will need to be matched by private investment for key UK projects.

However, in a note to clients, S&P said private investment was under threat. It said the biggest risks for infrastructure companies could be a likely reduction in capital investment – both domestic and foreign direct investment.

"This would stem from an extended period, potentially running for many years, during which the terms of exit and replacement trade treaties with the UK's partners are renegotiated."

The agency added that in the long run, uncertainty about political, regulatory, and macroeconomic conditions could also reduce infrastructure asset valuations in the UK. "Furthermore, the performance of some infrastructure companies, such as transport, retains a strong link to GDP, which has weakened in the aftermath of the 23 June referendum."

Nonetheless, S&P noted that even if financing conditions change, the UK's underlying infrastructure needs won't, and infrastructure assets might become cheaper as the pound devalues.

S&P credit analyst Michael Wilkins said: "There are chances the uncertainty in infrastructure investment will dissipate sooner rather than later.

"Despite the delay in some decisions concerning infrastructure projects, and uncertainty about funding from traditional players, such as the UK government and sovereign wealth funds, we believe that the new post-Brexit investment landscape may provide opportunities for new players."

Wilkins added that a change in market fundamentals may actually open up opportunities. "Some investors may be able to capture higher returns on projects, making the infrastructure sector an attractive option for them."