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Volatility at home and Brexit spell uncertainty for UK universities, warns Moody's

UK universities face significant uncertainty stemming from domestic policy volatility and the impact of Brexit, according to a report by the leading credit rating agency Moody's.

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Volatility at home and Brexit spell uncertainty for UK universities, warns Moody's

UK universities face significant uncertainty stemming from domestic policy volatility and the impact of Brexit, according to a report by the leading credit rating agency Moody's.

The agency's Public Sector Europe said the sector also faced challenges because of rising costs and increasing competition for students and staff.

The report, Higher Education - UK - 2017 Results: Stable financial performance clouded by policy and Brexit uncertainty, is an update to the markets and does not constitute a rating action.

"UK universities are currently facing a range of challenges, including rising cost pressures and unfavourable demographics for student recruitment," said Matt Fawcett, the report's author. "Despite the challenges, universities rated by Moody's posted stable financial performance in 2017, with an increase in aggregate turnover and median operating cash flow margin remaining stable."

Depending on the terms of the final deal, Brexit remains a major concern for universities in terms of research funding; attracting and retaining top EU talent and; student recruitment both from the EU and internationally.

Over the last few years, tuition fees have been the key driver of growth in turnover. However, the government's recent announcement of a tuition fee freeze for the 2018-19 academic year dampened the outlook for tuition fee growth and created uncertainty around how fees will be structured post-2019, according to the report.

Overall cost pressures are being driven by rising expenditure on staff, particularly increasing pension obligations. Total staff costs for UK universities increased by 5 per cent between 2016 and 2017 and accounted for the largest expenditure -55 per cent of all operating costs.

To sustain the level of capital investment needed to attract students and staff, universities are increasingly financing capital expenditure through external borrowing as levels of publicly funded capital grants reduce, the report said.

Universities rated by Moody’s – Oxford, Cambridge, Manchester, Southampton, Leeds, Cardiff, Liverpool, Keele and De Montfort, in Leicester - have consistently outperformed the sector over the last five years with the number of students enrolled at rising by 4 per cent in 2017. This compares with growth of 2 per cent for the sector as a whole.

The company said that the strong performance for rated universities reflects their high rankings in university league tables and their firmly established reputations, both of which help to attract students from the UK and overseas.

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