Healey’s appointment fuels investor expectations of higher military spending
UK defence stocks jumped Tuesday after Prime Minister Andy Burnham appointed former defence secretary John Healey as finance chief, a move some investors expect will boost military spending.
Healey resigned as defence secretary in June under former Prime Minister Keir Starmer over what he said was the government’s failure to materially increase military spending. His resignation letter called for the UK to spend 3% of gross domestic product on defence by 2030. The UK currently expects to spend 2.7% of GDP on defence by the end of the decade and has pledged to reach 3.5% by 2035 under NATO commitments.
Babcock International, which builds ships for the UK navy and manages the military’s nuclear, air and vehicle assets, led the FTSE 100 in late morning trade, rising 6.8% to £11.08. BAE Systems rose 3.3%, while engine maker Rolls-Royce climbed 1.9%. Defence technology group QinetiQ, spun out of the Ministry of Defence in 2001, gained 4.1%.
“We think it is very likely that Mr. Healey will now seek to boost U.K. Defence spending,” J.P. Morgan analysts wrote in a note to clients.
The appointment also lifted defence companies elsewhere in Europe that have significant exposure to the UK market. Shares in France’s Thales and Italy’s Leonardo — each deriving between 10% and 15% of their sales from the UK, according to Citi analysts — rose by 1.7% and 3.8%, respectively.