New Chancellor of the Exchequer Rachel Reeves will make a speech today where she will warn that spending cuts and some tax hikes are needed in order to address a "£20 billion black hole" in government finances, according to weekend reports.
Shares in some sectors that might be affected were modestly lower on Monday, including infrastructure construction groups Costain and Balfour Beatty.
A Treasury review following the general election earlier this month found the last government went £20 billion "over budget", reports from the BBC and weekend newspapers said.
To plug this hole, new chancellor Reeves plans cuts to spending, including the cancellation of some road and rail projects, along with some tax increases, possibly on capital gains or inheritance.
Likely projects to be shelved are the Stonehenge A303 road project, some hospital construction and the Euston HS2 leg.
Analysts at Peel Hunt said the Stonehenge project was largely awarded to overseas contractors, though Costain Group PLC (LSE:COST) had been been outsourced a delivery partner role.
A cut in new hospital construction could affect "various" contractors, the analysts added, while the Euston HS2 leg was another awarded to Costain and some overseas contractors.
"There had already been some speculation that highways spending was likely to come under pressure alongside some rail projects to address HS2 spending," the analysts said.
"However, for this to be such a prominent feature of rhetoric may curb some near-term enthusiasm for the wider sector."
As for how material these delays or cancellations could be, the analysts believe it is "likely to imply that the UK Infrastructure market will be flat rather than demonstrate slight growth".
"For the larger contractors, there remain structural drivers to market share, not least the ability to drive savings for the government. We remain positive on the sector, supported by the diversification and quality of earnings."
** Update: Adds broker comment **