UK defence stocks climb as John Healey takes over as finance minister

Defence sector gains after cabinet reshuffle

Shares in UK defence companies moved higher on Tuesday after newly appointed Prime Minister Andy Burnham named former defence secretary John Healey as the country’s new finance minister, prompting investors to reassess prospects for future military spending.

By 10:03 GMT, Babcock International (LSE:BAB) had advanced 6.4%, Qinetiq (LSE:QQ.) gained 3.8%, while BAE Systems (LSE:BA.) rose 3%.

Markets anticipate stronger defence investment

Healey left his role as defence secretary in June after criticising the previous administration over military funding, arguing that the then-prime minister had been “unable” and the Treasury “unwilling” to provide the resources necessary to safeguard the country.

According to Andrew Wishart, senior UK economist at Berenberg, Healey’s earlier resignation over defence spending “suggests that he will raise military expenditure,” although the question of how such increases would be financed “remains to be seen.”

Fiscal pressures remain a key challenge

Although Healey is regarded as a respected figure within the Labour Party, he now faces the difficult task of increasing funding for priorities such as defence while supporting economic growth, reducing welfare spending and remaining within the fiscal framework that Burnham has committed to maintaining.

While he was not widely expected to become finance minister, investors welcomed the appointment, citing his previous experience as a junior Treasury minister under Gordon Brown between 2002 and 2007, together with senior roles held under successive Labour leaders.

Earlier this month, Healey told the BBC that increased investment in defence could contribute to revitalising British industry and supporting a broader programme of reindustrialisation.

Sterling also strengthened modestly following his appointment after earlier weakness triggered by Burnham’s comments suggesting there could be some flexibility in the UK’s fiscal rules.

Canada expected to join GCAP programme

The new government is also expected to announce an important defence initiative on Tuesday by inviting Canada to participate in the Global Combat Air Programme (GCAP), the next-generation fighter aircraft project currently led by the United Kingdom, Italy and Japan.

The announcement is expected to coincide with the Farnborough International Airshow, one of the aerospace and defence industry’s leading annual events, where ongoing conflicts in Ukraine and the Middle East continue to drive demand for advanced military technologies, including combat drones, interceptor missile systems and artificial intelligence-enabled defence software.

Canada is expected to join the programme as an observer, becoming the first country outside the three founding partners to participate in the GCAP initiative.