Rishi Sunak wants to put Britain’s defence industry on a “war footing”. The UK prime minister’s pledge to increase defence spending to 2.5 per cent of GDP in response to the war in Ukraine and other threats is welcome news for companies like BAE Systems and the legion of other organisations that make up Europe’s largest defence sector.
Even before Sunak’s intervention, their order books were bulging as governments around the world stepped up spending. Shares in BAE Systems, Britain’s leading contractor, have surged 40 per cent over the past 12 months — far ahead of the broader UK index.
Hopes of an advance on one key front, however, look likely to be frustrated. The EU is similarly rushing to bolster defence budgets and industrial resilience, but Brexit means Britain’s industry could be excluded. Ursula von der Leyen, European Commission president, told an industry conference this year that as part of the bloc’s first ever defence industrial strategy it was important to “spend more, spend better, spend European”. The initiative is subject to suggestions from member states. It remains to be seen exactly how the rules will work in practice, but it has already set alarm bells ringing among UK executives.