Future Rail Infrastructure funding - bond markets are showing cracks

[pethadine82]

With borrowing costs increasing, and with rising public debt, what will happen to new rail infrastructure projects?
The bond market is larger than the equity markets and these are typically traded by institutions, hedge funds, Governments, rather than retail investors, so when the bond market is showing an inversion in the yield curve, a recession is more likely.
You don't have recessions when you have record employment and growth. The technical definition of a recession is two successive quarters of negative GDP. With rising inflation rates will go up to combat this. Bond yields are inverse to bond prices which will cause bond prices to drop.
This could potentially have devastating impacts on infrastructure spending. Is there a contingency plan for rail?

 

[Magdalia]

Infrastructure spending is funded by borrowing at the long end of the yield curve. It shouldn't be affected much by short term interest rates, which are driven by central bank policies to control inflation. The yield curve gets inverted when short term interest rates go higher than long term interest rates, which don't change very much. The more usual upward sloping yield curve will come back as and when central banks bring short term interest rates down again.

Employment is a separate issue, where the past is not a good guide to the future because of demographic changes. The UK now has a chronic undersupply of people of working age and that's not likely to change any time soon. A more pertinent question might be to ask what contingency plans are in place to ensure that people with the right skills will be available to deliver new rail infrastructure.

 

[JonathanH]

This could potentially have devastating impacts on infrastructure spending. Is there a contingency plan for rail?

What sort of contingency plan are you looking for? A new source of funding is unlikely to be forthcoming. Essentially it depends on there being a likely return on the investment.

The other challenge will be whether the remaining infrastructure companies are going to be able to keep going if there is no funding of new projects to keep them in business.

 

[zwk500]

Is there a contingency plan for rail?

Sadly, I suspect it involves a very big 'pause' button and several shelves on which to put plans.

 

[Starmill]

With borrowing costs increasing, and with rising public debt, what will happen to new rail infrastructure projects?

Public debt is always rising, and public borrowing costs are only slightly higher than they were before the pandemic. In any case the capital funding on offer for the railway was never going to be anything like enough to do all of the work proposed, and scarce few enhancements are even committed.