United Kingdom Infrastructure Report Q4 2008

Recent Developments The UK government has approved plans for a 500 megawatt (MW) windfarm off the Cumbrian coast, in the north of England. The farm is one of the largest approved to date and illustrates the UK's attempts to reach its renewables targets (September 2008). The West of Duddon Sands Wind Farm will be built and operated by consortium Morecambe Wind Limited. The farm will take several years to build and require an investment of over GBP1bn (US$1.76bn).

DP World has been awarded a GBP400mn (US$744mn) contract to build the first phase of a new container port at South Essex's London Gateway (August 2008). The contract, which is the first to be granted in the GBP1.5bn (US$2.78bn) project, inaugurates a 10-15 year long operation to develop the most technologically complex container port in the world.

Industry Forecasts BMI has revised down its construction sector forecasts. As we underlined last quarter, the UK's strong links to the US economy and its over-dependence on the financial services industry as an engine of growth make it particularly vulnerable to the economic fallout from the turmoil in America's banking sector and wider credit markets. And, of course, those problems have got considerably worse over the last quarter. In the short to medium term, this has a significant negative effect on the banking sector's willingness - and even its ability - to fund major infrastructure projects. Public sector guarantees for work are increasingly being sought by the jittery banking sector, and these jitters also threaten to delay the construction of Olympics-related projects. Furthermore, the wider consequences of the financial crisis on economic growth could also affect government revenues and the future pipeline of public sector tenders. In this context, we now forecast that the construction sector will grow by 1.0% in real terms in 2008, and 1.6% in 2009 (compared to previous respective forecasts of 5.5% and 5.3%). For the five-year forecast period as a whole (2008-2012), we predict that the construction sector will undergo average growth of 1.9% per year, compared with an earlier forecast of 3.2% per year.

Company Profiles This quarter we have overhauled our company profiles for Balfour Beatty and Bovis Lend Lease. We evaluate their prospects within the context of the credit crisis, evaluating their revenue streams, order books and other factors which may provide support against the increasingly challenging external headwinds.

The Olympic Development Authority (ODA) came to an initial agreement with Lend Lease on the building of the Olympic Village for the 2012 Games in London (August 2008). The company would manage the initiative, enabling construction to move forward, but responsibility for finding funding for the project would lie with ODA. Once funding was secured, then Lend Lease would take an equity stake in the project. The turmoil in global financial markets, and the reluctance of banks to lend to private enterprises for major projects, meant that Lend Lease was itself reluctant to take on too much exposure, without funding having first been secured.