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CONTRIBUTORS

Una Jackman, CFA

Portfolio Manager

Moaz Mohib, CFA

Portfolio Manager

Key takeaways

  • While the UK’s Spring Statement1 contained no substantive policy developments, it offered a slightly weaker near-term growth outlook and highlighted growing energy-driven inflation risks.
  • With energy-driven inflation risks rising, regulated infrastructure businesses with revenues linked to their regulated asset bases should become increasingly attractive.
  • The statement largely confirms the key takeaways for infrastructure from the Autumn Budget in late 2025: UK policy remains steady in its endorsement of the energy transition, to the benefit of renewables and regulated utilities.

Steady energy transition support amid higher energy-driven inflation risks

The UK Government recently released its Spring Statement, which updates economic projections based on the latest data. As expected, it contained no substantive policy developments, but it offered a slightly weaker near-term growth outlook and, while it noted inflation had come down, it also highlighted growing energy-driven inflation risks, particularly related to the recent escalation of conflict in the Middle East. 

What are its takeaways for listed infrastructure? For one, the Middle East conflict underscores the importance of UK energy security, reinforcing the urgency of grid expansion, domestic renewables deployment and investment in gas storage and hydrogen infrastructure.

Second, with energy-driven inflation risks rising, regulated infrastructure businesses with revenues linked to their regulated asset bases should become increasingly attractive. These businesses also retain defensive appeal in a more modest growth environment given their visible, policy-backed capex pipelines, though valuations remain sensitive to higher bond yields.

As a reminder, listed infrastructure assets often have allowed returns linked to inflation, enabling price adjustments that have helped protect investor returns from inflation erosion—effectively an inflation “pass-through” mechanism.

With no policy changes, the statement largely confirms the key takeaways for infrastructure from the Autumn Budget in late 2025. We are pleased to see UK policy remain steady in its endorsement of the energy transition, to the benefit of renewables and regulated utilities. The Autumn Budget’s North Sea Future Plan and Warm Homes Plan2 are examples of this: the new and permanent Oil and Gas Profits Mechanism—a 35% revenue-based tax above specified oil and gas price thresholds3—cements a high-tax regime for oil and gas in the North Sea basin and should accelerate the pivot to renewables. The North Sea Future Plan further frames the role of offshore wind, carbon capture, utilization and storage (CCUS), hydrogen and associated infrastructure there as explicitly strategic.

Power generators and integrated utilities should continue to benefit structurally from these and other supportive energy transition policies. A temporary period of elevated power prices can be earnings accretive, particularly for flexible generation assets, while the energy trading operations of these businesses are typically well-positioned to navigate and monetize heightened volatility.

The key political risks we will be monitoring are persistent inflation and a material rise in consumer bills. A stronger government focus on energy affordability could increase the risk of regulatory or fiscal intervention, though we believe the odds of this are very low.

Endnotes

  1. The UK Spring Statement is an annual update delivered by the Chancellor of the Exchequer to Parliament, outlining the government's economic forecasts and fiscal position. Based on Office for Budget Responsibility (OBR) data, it provides a low-key update on public finances, usually in March, rather than a full budget with major tax changes.
  2. The UK Government’s 2025 Autumn Budget unveiled the North Sea Future Plan and a £1.5 billion boost for the Warm Homes Plan, aiming to balance energy security with net-zero commitments.
  3. The UK’s oil and gas profits mechanism, transitioning from the Energy Profits Levy (EPL) to a permanent Oil and Gas Price Mechanism (OGPM) by 2030 or earlier, imposes a 35% tax on revenues from high-priced, domestic, upstream operations.

 

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Equity securities are subject to price fluctuation and possible loss of principal.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. To the extent the strategy invests in companies in a specific country or region, it may experience greater volatility than a strategy that is more broadly diversified geographically.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

Diversification does not guarantee a profit or protect against a loss. Dividends may fluctuate and are not guaranteed, and a company may reduce or eliminate its dividend at any time.

Companies in the infrastructure industry may be subject to a variety of factors, including high interest costs, high degrees of leverage, effects of economic slowdowns, increased competition, and impact resulting from government and regulatory policies and practices.

Securities issued by utility companies have been historically sensitive to interest rate changes. When interest rates fall, utility securities prices tend to rise; when interest rates rise, their prices generally fall.

Investment strategies which incorporate the identification of thematic investment opportunities, and their performance, may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. Focusing investments in information technology (IT) and technology-related industries carries much greater risks of adverse developments and price movements in such industries than a strategy that invests in a wider variety of industries.

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