Microsoft has confirmed it has withdrawn from a UK AI data centre deal with British start-up Nscale, dealing a blow to the country’s artificial intelligence ambitions. The US technology giant had agreed last year to lease computing capacity from Nscale—an AI infrastructure provider backed by chip titan Nvidia—at a planned data centre in Loughton, northeast of London.

A Microsoft spokesperson said “this decision relates to a single site,” adding that the company remains “committed to our partnership with Nscale.”

The deal had been announced alongside a flurry of multi-billion-dollar investments from US tech giants during President Donald Trump’s state visit to the UK last year, which were touted as helping turn Britain into an AI superpower. Former Prime Minister Keir Starmer cited the Loughton site as the “largest UK sovereign AI data centre.”

However, some data centre projects have struggled to get off the ground due to concerns over high electricity prices and lengthy waits to connect to Britain’s power grid. UK media reported that grid officials had told Nscale the site would not have access to power until the 2030s.

“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,” an Nscale spokesperson said Monday. “Our relationship with Microsoft remains strong and long-term, and this unfortunate London-wide grid issue has no impact on our other contracts.”

Nscale Prepares for Wall Street IPO

The development comes as Nscale gears up for an initial public offering on the New York Stock Exchange, reportedly targeting a valuation of up to $35 billion. In its IPO filing, Nscale noted that “a substantial portion of our committed revenue is driven by a limited number of customers with large contracts”—namely Microsoft and US AI giant Anthropic. According to a person familiar with the matter, the Loughton deal accounted for only a small portion of Microsoft’s agreements with Nscale.

Earlier this year, ChatGPT maker OpenAI withdrew from a partnership with Nscale and Nvidia to establish a UK version of Stargate, a large-scale AI infrastructure initiative. OpenAI blamed high energy costs and regulatory uncertainty for shelving the project, according to British media.

Meeting the electricity demands of large new data centres often requires major infrastructure upgrades, adding to connection delays. UK Power Networks, which does not disclose information about individual connections, told AFP on Monday that “many data centres, whilst they can connect to our distribution network, are awaiting works on the national transmission network, which we do not own.”