Babcock shares surge as Starmer calls for Europe to ‘step up’ on defence
Shares in Britain’s defence giants rallied on Monday morning as Prime Minister Sir Keir Starmer called for Europe to “step up” on defence spending.
Babcock – which plays a key role in the UK’s nuclear submarine fleet as well as naval, land and air operations – surged nearly four per cent in early trading to 1,346.00p.
Meanwhile, aerospace supplier Melrose soared 3.5 per cent to 664.60p whilst BAE Systems was up nearly three per cent to 2,023.00p. Rolls-Royce jumped just below one per cent to 1,280.00p.
It came after reports emerged on Monday that Downing Street was weighing a hefty increase to defence spending.
Starmer laid out his targets for defence last year, amid rising pressure from President Donald Trump for Nato to up its spend.
The government promised to spend 2.5 per cent of GDP on core defence by April 2027, with the figure rising to three per cent by the end of the next Parliament.
But this deadline could arrive much sooner, according to reports from the BBC, which suggest the Prime Minister is exploring proposals to hit the three per cent target by the end of this Parliament, which could last until 2029.
Russian threat puts defence on high priority
On Monday, when questioned on the reports Starmer said: “We want a just and lasting peace, but that will not extinguish the Russian threat, and we need to be alert to that, because that’s going to affect every single person in this room, every single person in this country, so we need to step up.
“That means on defence spending, we need to go faster.”
The Prime Minister did not confirm an increase to defence spend but said Europe needs to “step up when it comes to defence and security”
The government’s ‘defence investment plan’ – which outlines the plan to spend more on defence – is still yet to be published after it was announced in June 2025.
Last month, reports from The Times and The Sun suggested the Ministry of Defence was staring down a gap of £28bn over the next four years.
Pressure has piled on for the UK to up spending with Tory leader Kemi Badenoch and Liberal Democrat leader Ed Davey each demanding the government brings forward its deadline to increase defence expenditure to three per cent.
Over the weekend, Sir Richard Knighton, the Chief of the Defence Staff, Air Chief Marshal, issued a joint call with his German counterpart for a “step change in our defence and security”.
The pair warned that Europe “must now confront uncomfortable truths about its security” after Russia had “shifted decisively westward”.
“There is a moral dimension to this endeavour. Rearmament is not warmongering; it is the responsible action of nations determined to protect their people and preserve peace,” the pair wrote in The Guardian.
“Strength deters aggression. Weakness invites it.”