Strategic Defence and Security Review 2015
In its Strategic Defence and Security Review 2015, the UK Government set out substantial financial commitments to spending on defence equipment and support, including £178 billion over the next decade with 2% of GDP committed to defence spend annually.
Short-term volatility
In the immediate aftermath of Brexit there has been a focus on the short term impact on market volatility in the stock and currency exchange markets. In particular, the weakness of sterling has caused a spike in the share price of some UK defence contractors with heavy export order books priced generally in dollars.
Outlook – medium term
In the medium term, ADS, the aerospace defence and security trade organisation, has emphasised the importance of UK Government reconfirming its commitment to defence procurement programmes. ADS states that the UK aerospace and defence industry employs 128,000 people with an annual turnover of GBP 31 billion of which GBP 27 billion is exported: “Aerospace and defence are long cycle businesses, we are not going to stop delivering aircraft, delivering defence capability.”
Political commitment to defence spending
It remains to be seen whether fiscal constraints caused by the Brexit vote have any adverse impact on these commitments, but Theresa May, the new Prime Minister, has stated that she will make strong defence an important priority, reiterating the commitment to spend 2% of GDP on defence and maintenance of an independent nuclear deterrent.
Nature of defence procurement
It is also important to bear in mind that procurement of defence equipment inevitably requires a long term strategic review, given the scale, complexity and timescales of the investment decisions, with defence equipment often taking decades to be developed from concept and design assessment to production and commissioning for service.
In addition, the scale of the investment required has often led to cross-border collaboration in order to spread the development costs, with both UK-US collaboration (on projects such as the F35 joint strike fighter) and UK-Continental Europe collaboration (on projects such as the Eurofighter Typhoon).
Outlook – need for stability for national security
In this context, it is likely that defence spending will be a political priority, with wider security alliances, in particular NATO, creating an impetus which should hopefully transcend the political upheaval caused by the Brexit vote, given broader imperatives driven by national security concerns. This has been evidenced by the 18th June parliamentary approval of the Trident nuclear programme.
