Shares in UK weapons manufacturers have soared today as leaders from across the continent convene for an emergency meeting in Paris to discuss the war in Ukraine.
“We’re facing a generational challenge when it comes to national security,” said Prime Minister Keir Starmer before heading to the meeting, adding that he was “ready and willing” to deploy peacekeeping troops to Ukraine.
Before the meeting, Nato secretary general Mark Rutte said that members will have to boost their defence spending to “considerably more than three per cent” of GDP.
BAE Systems rose 6.8 per cent to the top of the FTSE 100 as the market digested the news.
The defence firm is set to report its full-year results on Wednesday. Panmure Liberum analyst Nick Cunningham expects future growth rates “in the high single-digit range in the UK, Europe and Australia, driven by rapid budget growth and strong export demand. “
BAE, the largest arms manufacturer in Europe, has already played a significant role in Ukraine.
FTSE 250 firms Chemring and Qinetiq jumped 10 per cent and five per cent, respectively on the news. In Europe, German defence giant Rheinmetall surged 10 per cent
“Shares in defence companies had already rallied hard since Russia invaded Ukraine as investors took the view that the shocking events would spur governments around the world to fortify their own defences,” explained AJ Bell investment director Russ Mould.
“In terms of European geopolitics, it’s been a huge last few days with potentially large ramifications ahead, and maybe we’ll look back on them as a big catalyst to higher European defence spending,” said Deutsche Bank managing director Jim Reid.
“The UK has one of the higher defence spending numbers in Europe (as a per cent of GDP) but even there, defence spending makes up a much smaller share of the budget relative to the past,” he added.
“Rutte’s comments effectively confirm this line of thinking and have acted as another share price catalyst, even though markets had already priced in a stronger earnings environment for the sector,” added Mould.
“That Donald Trump is keen for European allies to spend as much as five per cent of GDP on defence adds to the narrative supporting the sector.”