UK infrastructure costs spiraling

What happened: The UK's infrastructure projects are facing spiraling costs. The energy system operator estimates rewiring Great Britain's electricity network could reach £90bn by the 2030s, a 50% increase since 2010. The Lower Thames Crossing road tunnel's budget has risen by £174m to £11bn. HS2's future is uncertain due to cost overruns, with the National Audit Office advising a pause until confidence in delivery is established. The Science and Technology Facilities Council faces a £162m funding crisis, risking closure of national facilities. Northern Powerhouse Rail's £45bn budget is under scrutiny due to HS2's failures. Meanwhile, Shetland Islands Council plans £1.5bn undersea tunnels to replace ferries.

Market impact: Infrastructure stocks and related supply chains are affected. Companies involved in energy grid modernization, road construction, high-speed rail, and scientific facilities may see increased costs and potential delays. Valuations could reprice as investors reassess project feasibility and risk. The public sector's ability to fund and deliver projects is in question, impacting broader economic growth and investor sentiment.

What to watch next: The government's response to the NAO's HS2 report, expected in late 2023, will clarify the project's future. The Treasury's autumn statement in November 2023 may reveal funding allocations for infrastructure projects, including the Lower Thames Crossing and Northern Powerhouse Rail. Shetland Islands Council's approval of the undersea tunnel project on August 15, 2023, will signal progress on that initiative.