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Moody's changes UK water sector outlook to negative

Staff Writer | January 16, 2018
Moody's Investors Service changed its outlook for the UK water sector to Negative from Stable, on the back of the proposed cuts by the regulator in water companies' allowed returns.
UK water sector
Britain   Solid UK water sector performance will likely continue
"The Water Services Regulation Authority's proposed cut in UK water companies' allowed headline returns by a third from 2020 will weigh heavily on the credit metrics of many firms and underpins the negative outlook on the sector over the next 12 to 18 months," the ratings agency said.

According to Moody's, Ofwat's regulatory price review, which will conclude in December 2019 and will set tariffs for the period from April 2020 to March 2025, is likely to result in lower allowed returns for companies and the regulator has guided towards a headline rate of 2.3% as compared to the current 3.6% for the wholesale activities.

Moody's believes that solid sector performance will likely continue until the end of the current period in March 2020, but will not be sufficient to offset the pressure of low returns.