The development of a huge AI datacentre hailed by the UK government has received a fresh setback after Microsoft pulled out of the project over concerns about power supplies.

The development by the British company Nscale, heralded by ministers as the country’s largest AI datacentre when it was announced in 2025, was planned to open at Loughton in Essex next year.

Doubts had already emerged about the scheme after the Guardian revealed in March that the location was still an operational scaffolding yard.

Now there are further concerns after Microsoft, one of its largest planned customers and expected to have been the anchor tenant, informed the company that it was pulling the plug on its agreement.

It comes a month after it emerged that power supply problems meant the project would face a lengthy wait before coming online.

Keir Starmer’s government had highlighted the Loughton project when announcing the UK’s AI strategy in 2025, describing it as the “largest UK sovereign AI datacentre”. Datacentres are the central nervous system of AI technology such as chatbots.

The end of the deal with Microsoft, first reported in the Telegraph, means Nscale has lost its only publicly announced customer for the Essex datacentre. It is understood that Microsoft remains on board for another project the company has in Norway.

Nscale, which is backed by tech firms including Nvidia, has positioned itself as Britain’s “sovereign” data centre provider but the loss of an anchor tenant for its Loughton project could undermine its ambition to float on Wall Street this year with a potential valuation of $35bn (£26bn).

An Nscale spokesperson said: “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.

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