Defence shares surged in London on Tuesday following the appointment of former defence secretary John Healey as the new Chancellor, sparking investor optimism over increased military spending. Babcock International led the FTSE 100 risers with a 7.8% gain, while BAE Systems advanced 3.25% and Qinetiq climbed 4% higher.
Healey's appointment fuels defence investment hopes
Investors and firms welcomed Healey's appointment late Monday, viewing his defence background as a positive signal for the sector. Healey resigned as defence secretary last month, accusing then-Prime Minister Rachel Reeves of jeopardising national security with a delayed defence investment plan. That plan, announced late last month, included a pledge to increase defence spending by £15 billion, setting the UK on a path to spending 3% of GDP on defence in the next parliament—though still below NATO's 3.5% target by 2035.
New Prime Minister Andy Burnham is widely expected to commit to further defence spending to meet the NATO target. However, raising additional funds poses a challenge, with around £4.7 billion of the previously announced plan remaining unfunded. Healey has previously indicated he would consider using "defence bonds," borrowing specifically allocated for the military, to boost resources.
Market reaction and analyst views
Dan Coatsworth, head of markets at AJ Bell, said: "UK defence stocks motored higher on Healey's appointment, given his previous role in pushing Keir Starmer to agree to higher defence spending. The market is taking the view that defence is close to Healey's heart, and he will drive through increased funding under his new role as Chancellor."
Elsewhere, water companies drifted lower after Burnham reiterated calls to bring more industries under "public control." South West Water owner Pennon and United Utilities both fell in early trading. The FTSE 100 index was steady, up 0.1% at 10,535.61 points, following the announcement of cabinet appointments.
Other cabinet changes
Burnham also reappointed Jonathan Reynolds as Business Secretary, a role he held until last September. Reynolds will have expanded responsibilities after Burnham shut down the Department for Science, Innovation and Technology and merged much of it with the business department.
