Rolls-Royce and BAE Systems shares surge on UK defence spending plans

The sector rallied as investors backed the main beneficiaries of Britain’s £15bn Defence Investment Plan

Rolls-Royce and BAE Systems were among the London-listed defence stocks to surge on Tuesday as investors piled into the primary beneficiaries of Keir Starmer’s £15bn military spending proposals.

The outgoing prime minister unveiled the government’s long-awaited Defence Investment Plan during a speech in Berkshire, appearing alongside Chancellor Rachel Reeves and Defence Secretary Dan Jarvis.

The sweeping market rally across the sector stood in stark contrast to the political furore surrounding the proposals. Military chiefs had pushed for double the amount contained in the final headline figure.

Jarvis’s predecessor, John Healy, resigned after Downing Street declined to increase spending as the document was being finalised earlier in June.

But the plans proved sufficient to trigger a broad advance across the defence sector, from multi-billion pound heavyweights on the FTSE 100 to relative minnows on the Alternative Investment Market, as reported by City AM.

Rolls-Royce climbed almost three per cent to 1,457p, nudging the jet engine maker’s shares back towards the record high of just under 1,533p reached last week, driven by strong investor appetite ahead of the defence spending update.

The manufacturer, which has UK sites in Derby and Filton near Bristol, is a key supplier to the Ministry of Defence (MoD), producing engines for the Royal Air Force’s C-130 Hercules and the Eurofighter Typhoon. The company also designs and builds the nuclear reactors that power the Vanguard and Astute submarines, which carry the UK’s nuclear deterrent and remain permanently on patrol at sea.

Also on the top-tier index, BAE Systems climbed nearly two per cent to 1,842p.

The £52bn firm is the single largest supplier to the MoD. It is spearheading the RAF’s next-generation fighter plane under the Combat Air Programme, or GCAP, being run in partnership with Japan and Italy.

It also constructs UK submarines at Devonshire Dock Hall in Barrow-in-Furness.

Babcock International, which owns Devonport Dockyard in Plymouth, surged over three per cent to 950p. The company maintains the army’s 30,000-strong vehicle fleet, ranging from quad bikes to Challenger tanks, ensuring they remain battle-ready at a moment’s notice.

On the FTSE 250, Qinetiq, which trains RAF pilots and tests crucial weapons systems, gained two per cent to reach 421p.

Cohort, an AIM-listed provider of sonar and other military sensors, jumped nearly five per cent to 1,250p.

Also on AIM, Velocity Composites advanced almost eight per cent to 14p. The £7.8m Burnley-based company supplies bespoke carbon fibre materials to military grades.

Overall, the FTSE 350 Aerospace & Defence sub-index, which tracks the sector, was up 2.5 per cent on Tuesday. It comfortably outpaced the FTSE 100’s 0.8 per cent gain and a 0.7 per cent rise for the FTSE 250.