Shares in Rolls-Royce Holdings PLC (LSE:RR.), BAE Systems PLC (LSE:BA.) and Babcock International PLC (LSE:BAB) rose between 2% and 3% in early trading on Tuesday, dominating the FTSE 100 leader board.
The gains came as investors bet on a fresh increase in UK military spending against a darkening geopolitical backdrop heading into the G7 summit.
New defence secretary, Dan Jarvis, is expected to revisit the government's defence investment plan and may press the Treasury for additional funding.
Jarvis replaced John Healey, who resigned last week after refusing to accept a settlement he said left the armed forces short of resources.
Healey had rejected an offer of £13.5 billion to plug an £18 billion gap in the funding of major defence projects.
Sir Keir Starmer has since committed to spending 3% of national income on defence during the next parliament by the end of 2034.
That trajectory points towards larger long-term order books for the three contractors, which already carry multi-year backlogs.
The sector has been among the strongest on the UK market, rerating sharply as Western governments rearm in response to Russia and China.
European budgets are climbing fast, with EU defence spending expected to exceed €392 billion this year, up from €221 billion in 2021.
Tuesday's move also reflected rising tensions abroad, with G7 leaders in France set to discuss the threats from Russia and Iran.
The war with Iran has stretched into a fourth month, while the Royal Marines seized a Russia-linked oil tanker in the Channel at the weekend.
Starmer will use the summit to call for further sanctions on Russia alongside military and energy support for Ukraine.
Analysts caution that valuations look stretched, with Rolls-Royce and BAE Systems trading well above the wider FTSE 100 average.
