Bullets used by the British Army could soon be manufactured abroad. Royal Ordnance, which produces explosives, ammunition and small arms, could be closed with the Ministry of Defence using European firms instead.

Royal Ordnance traces its history back to 1560 and the Royal Gunpowder Factory at Waltham Abbey, but is now rumoured to be making a loss.

It was bought by BAE in 1987, and its supply contract with the MoD ends next year. BAE is said to be asking for a more expensive contract, while the MoD is concerned it will be paying well above the open market price.

The MoD is reported to be looking at the national security issues of not having a domestic bullet-making supplier. As many components of BAE’s munitions are now imported, a switch to other suppliers may have become less politically sensitive.

A spokesman for the MoD told UK The Times newspaper: “we are working with [it] on a solution that delivers security of supply and value for money to the taxpayer.”