The launch of the UK’s national industrial strategy, intended to provide a recovery road map for the country’s ailing economic fortunes, continues a recent narrative of the defence sector being used as a “vehicle for growth”, in a clear break from past decades.
Published on 23 June 2025, the UK government’s Modern Industrial Strategy targets eight sectors that have the greatest growth potential over the next decade, each of which will be given a “bespoke plan” in order to achieve its aims.
Although the detailed plan for defence is yet to be disclosed, initial details contained in the new industrial strategy indicate the importance of the sector.
In the document, the UK government said that it would “deliver the defence industrial base we need to protect our national security”, while unlocking the sector’s “significant untapped potential” for creating “growth spillover events” via innovation, exports, and scale ups.
The goal would cement the UK as “Europe’s leading defence exporter” and to have “closed the gap for venture capital investment into defence with the US by half”.
In a bid put the taxpayer’s money where the UK government’s mouth is, Whitehall will increase defence spending to 2.6% of GDP, with the ambition to reach 3% “in the next Parliament when economic and fiscal conditions allow”.
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By GlobalDataUK defence as vehicle for economic growth
Months after taking office in 2024, the new Labour government cut overseas development aid and reassigned the funds to defence – taking defence spending from 2.2% of GDP up to 2.5% – before subsequently announcing a plan to shift the Single Intelligence Account, which funds the UK’s spy agencies, also into military spending figures.
With this, ‘defence’ spending will account for 2.6% of GDP.
Recent months have seen UK government officials call for defence to be used as a “vehicle for economic growth”, with procurement programmes often said to be linked to job creation across the country, although the likely acquisition of additional mainly US-built F-35 fighters – instead of UK-manufactured Typhoon aircraft – dent this nationalistic narrative.
A report by the Heligan Group on 23 June stated that stocks in UK defence companies had seen “significant gains” in recent weeks, with BAE Systems and Rolls-Royce among the beneficiaries.
Cited as among the main influences for this included a shift in European defence spending as a result of a change in US geopolitical strategy, and the ongoing war in Ukraine.
Nick Leitch, managing partner at Heligan Group, pointing to the defence funding targets the UK set out in the recent Strategic Defence Review, stated that Russia meanwhile would spend an equivalent of more than 8% of its GDP on defence.
Among areas that Moscow will fund will be in cyber warfare activities, targeting corporations and seeking to paralyse systemic national infrastructure.
“In light of all this, public and corporate sentiment is now leaning into the defence and security technology markets. Banks and investors, once reticent, have a newfound enthusiasm for supporting these technologies as a necessity to sustain normal life and a deterrent to anything more sinister,” Leitch explained.
Meanwhile, also on 23 June, the government-owned British Business Bank announced a new £6.6bn ($8.8bn) commitment to “boost innovation and unlock entrepreneurial potential” across the UK, of which a £4bn Industrial Strategy Growth Capital is to be invested across the government’s eight “growth-driving sector”, which includes defence.
Unsurprisingly welcoming an announcement by the UK Secretary of State for Business and Trade of the decision to enable investment of the British Business Bank into growth sectors, Louis Taylor, CEO, said the bank had a “critical role” to play in supporting smaller businesses to “grow and stay in the UK”.
Europe rushes to fund re-armament plan
Meanwhile, mainland European economies and their respective defence industrial complexes are moving quickly to harness a sudden about-face by the European Union to permit greater defence investment among its member-states.
On 20 June, the European Investment Bank Group, which comprises the 27 EU member states, increase the 2025 financial ceiling to €100bn ($114.6bn) to step up investments in security and defence, innovation, and critical national infrastructure.
Among this was funding to build a major new military base at Rūdninkai in Lithuania, located in a critical sub-region of the EU that shares a border with a now adversarial Russia. The base will host a new German armoured brigade, as Europe seeks to shore up its national borders.
Earlier in June, the European Commission, the administrative arm of the EU, proposed measures to speed up defence investments, as part of efforts aligned with the White Paper for European Defence-Readiness 2030.
Measures included plans to reduce red tape red tape, facilitate investments in defence, provide greater predictability to industry, and make it easier to access EU funding.
According to the EC, the proposal “complements” amendments presented in April this year to existing EU funding programmes to support “faster, more flexible and coordinated investments” in Europe’s defence industrial base.
Strategy will see UK defence align with Europe
In May, the long-awaited UK-EU trade and security deal was announced, intended to smooth a path for a variety of sectors that had ridden a rocky road in the years since Brexit.
For the UK, utterances by the UK government of making its defence sector “an engine for growth”, as said recently by UK Defence Secretary John Healey at the London Stock Exchange in mid-May, indicated the desire was as much about ensuring jobs as military capability.
Later announced on 19 May, the UK government confirmed the new deal would “pave the way” for Britain’s defence industry to participate in the EU’s €150bn Security Action For Europe (SAFE) defence fund.
SAFE constitutes one pillar within the EU’s ReArm Plan that enables defence spending of up to €800bn to increase Europe’s defence market competitiveness and promote cheaper, collective procurement.
However, experts warned that the UK had significant shortages across STEM skills required for the defence sector, with little guidance as to how these could be addressed.
Speaking at the time, Chris Nelson, associate director at Engineering by Murray, said access to the SAFE fund would “certainly help”, but only if the investment is channelled into the right type of skills.
“There’s a range of specialist engineering talent needed to deliver against the emerging demands of the defence industry and at the moment, these aren’t being developed on the scale needed,” Nelson stated.
