In its January overview of the 2024 Outlook for the UK water sector, Moody’s is warning that the outlook remains negative, reflecting rising social risks.

In October 2023, water companies in England and Wales submitted business plans for the next regulatory period from 1 April 2025 to 31 March 2030 (AMP8), which include the largest investment programme since privatisation.

The report in a new report says the business plans propose significant rise in investment - around £96 billion of total expenditure (totex) for AMP8, which includes £41 billion to improve services and address public concerns around sewer discharges.

The proposed totex is 63% above Ofwat’s original current period allowances, with real RCV growth of around 30% over AMP8, requiring sizeable new debt and equity funding.

However, negative public sentiment increases the risk of a harsh price determination in December 2024, which may weaken the sector's credit quality and make it less attractive to investors, the report warns.

Stefanie Voelz, VP-Sr Credit Officer at Moody’s, said:

‘’Companies' business plan proposals will lead to a rise in the average combined household bill of over 30% by the end of AMP8 (before inflation). However, negative public opinion may increase pressure on the government and regulators to change established frameworks and set potentially unachievable targets.’’

“We could change our outlook back to stable if it appeared likely that the credit fundamentals for the sector will stabilise against the background of more favourable macroeconomic conditions and a supportive regulatory approach for the 2024 price review.”

However, she went on to warn:

“Ongoing regulatory pressure, affordability concerns and subdued economic growth continue to weigh against a positive outlook.”

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