Private investment in infrastructure will come under threat if Britain votes to leave the European Union (EU), especially in the two years after next month’s referendum, a survey carried out by a leading credit ratings agency has warned.
The survey of 51 infrastructure investors by S&P Global Ratings said that some infrastructure companies, whose credit ratings are linked to that of the UK government, could get a downgrade in the event of a departure. That is because the UK’s credit rating is expected to be lowered following a Brexit vote, according to S&P.
The report follows a warning from Prime Minister David Cameron earlier this week that leaving the EU and the subsequent loss of European Investment Bank (EIB) funding will “put the brakes” on crucial UK infrastructure projects.
The S&P survey covered infrastructure funds, investment management companies, insurance companies, hedge funds, pension funds, and sovereign wealth funds.
It found that in the short term the biggest worry for investors is currency volatility, with 71% stating concern. Around half of respondents fear political instability and macroeconomic turbulence in the event of Britain leaving the EU.
Another 71% did said that they thought an exit from the EU would “sap investment” in infrastructure in the two years after the vote, and 47% said this could go on longer. However, less than half (44%) actually thought Britain would leave the EU.
Despite concerns about infrastructure investment, the respondents were split about whether a Brexit vote would change their investment decisions. The UK has long been seen as a stable economy and investment from the EU accounts for around 20% of infrastructure investment.
“Up to 40% of UK infrastructure assets were under foreign ownership in 2014, which we believe accounts for the split about the impact of a Brexit on investing in the country, with 52% seeing a negative impact and 43% no impact and 2% seeing a positive impact. A vote to exit the EU would increase currency volatility in the short term and raise questions about the economic consequences. However, if demand from overseas investors declined, domestic investors could stand to benefit from increased returns for their investments,” said the report.
“It is said that perception is reality, and based on what investors are telling us, the reality is that a Brexit scenario could put long-term funding for UK infrastructure at risk. Given the significant infrastructure investment requirements the country faces, such sentiment is hard to ignore.”