Defence shares increased in value in London on Tuesday after the former defence secretary was appointed as Britain’s new Chancellor.
Investors and firms appeared to welcome the appointment of John Healey as Chancellor late on Monday.
Market movers
Babcock was the top riser on the FTSE 100, with shares up 7.8%, while BAE Systems lifted by 3.25% and Qinetiq moved 4% higher.
Last month, Mr Healey resigned as defence secretary from Sir Keir Starmer’s government after accusing the former prime minister and chancellor, Rachel Reeves, of putting the country’s security at risk, with its long-awaited defence investment plan.
Defence spending plans
The plan – which was announced late last month – saw the previous prime minister promise to increase defence spending by £15 billion. This would put the UK on a trajectory for defence spending to hit 3% of GDP in the next parliament, according to Sir Keir, but this would still be below the Nato target of 3.5% by 2035.
Mr Burnham is widely expected to commit to further defence spending in a bid to reach this international target. Nevertheless, raising the additional funds could provide a challenge for the new Chancellor, with around £4.7 billion of the previously announced plan unfunded.
Investor sentiment
Mr Healey has previously indicated he would consider the use of “defence bonds”, borrowing allocated specifically for the military, to help boost its financial resources. But Mr Burnham’s Government is understood to not be looking at this as a solution to pay for higher defence spending.
Investors are therefore hopeful that his appointment as Chancellor could lead to more investment in the sector.
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.”
Other market movements
Elsewhere, water firms drifted lower again on Tuesday after new Prime Minister Andy Burnham reiterated calls to bring more industries into “public control” following his appointment. South West Water owner Pennon and United Utilities were both lower in early trading.
Wider equity markets were steady however, with the FTSE 100 up 0.1% at 10,535.61 points following the announcement of Cabinet appointments.
Mr Burnham’s appointments also saw Jonathan Reynolds return as Business Secretary, having previously held the post until last September. He will have increased responsibilities after Mr Burnham opted to shut down the Department for Science, Innovation and Technology and merge much of this with the business department.
