The UK Government is anticipated to spend $54.4bn for defence in 2016, recording a negative compound annual growth rate (CAGR) of 2.42% over the last five years, according to a report by Strategic Defence Intelligence (SDI).

Titled ‘Future of the UK Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2021‘, the report states that the UK, the world’s sixth biggest defence spender, has been reducing its budget for defence from 2012 in order to reduce overall expenditure.

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The UK defence budget constitutes 1.8% of GDP in 2016, and will continue to remain the same until 2021. The demobilisation of troops from Afghanistan is also expected to reduce the expenditure.

"The defence revenue and capital expenditures during 2012-2016 accounted for 78.9% and 22% of total allocation respectively."

The next five years will, however, witness a positive CAGR of 3.09%, forecasts SDI. Terror threats from organisations such as ISIS and insurgencies such as Russia’s military intervention in Ukraine, apart from active participation in peacekeeping missions worldwide, are expected to drive the defence expenditure higher.

The defence revenue and capital expenditures during 2012-2016 accounted for 78.9% and 22% of total allocation respectively and are expected to remain the same during the forecast period.

The SDI report also reckons that budget cuts will affect the defence industry growth as the nation procures most of its equipment from domestic suppliers or companies in the European Union.

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The UK plans to acquire Chinook helicopters, armoured fighting vehicles and ballistic missile submarines, as well as upgrade Apache and Puma helicopters. Further, the nation is constructing Queen Elizabeth class aircraft carriers.