Microsoft exits data centre deal in blow to UK AI ambitions

Microsoft has withdrawn from an agreement to lease computing capacity at a planned Nscale data centre in Loughton, northeast of London, amid reported delays in securing electricity for the site.

The technology company confirmed the decision on Monday, October 19, but said its wider relationship with the British AI infrastructure provider remained intact. “This decision relates to a single site,” a Microsoft spokesperson said, adding that the company remained “committed to our partnership with Nscale”.

The agreement was announced last year alongside major US technology investments during President Donald Trump’s state visit to Britain. Former Prime Minister Keir Starmer described the proposed facility as the “largest UK sovereign AI data centre”. However, UK media reported that grid officials had told Nscale the site would not receive power until the 2030s.

Nscale, which is backed by Nvidia, said it remained committed to developing the facility and was examining other electricity options. “We remain committed to both the Loughton project and the UK and we are exploring alternative power sources for the site, in addition to other expansion sites in the UK,” a spokesperson said.

“Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts,” the spokesperson added. A person familiar with the matter said the Loughton agreement represented only a small part of Microsoft’s contracts with Nscale.

The development comes as Nscale prepares for a New York Stock Exchange listing, reportedly seeking a valuation of up to $35 billion. In its listing documents, the company said “a substantial portion of our committed revenue is driven by a limited number of customers with large contracts”, identifying Microsoft and Anthropic.

Earlier this year, OpenAI withdrew from a proposed partnership with Nscale and Nvidia to develop a British version of Stargate, a large-scale AI infrastructure initiative. British media reported that OpenAI cited high energy costs and regulatory uncertainty in its decision. Electricity prices and lengthy grid connection timelines have presented challenges for some UK data centre developments, which can require substantial upgrades to existing infrastructure.

UK Power Networks declined to discuss individual connections but said some projects were waiting for work beyond its distribution network. “Many data centres, whilst they can connect to our distribution network, are awaiting works on the national transmission network, which we do not own,” it told AFP.