Rishi Sunak might yet increase defence spending this year even though, to the surprise of many, there was no formal increase announced in the Budget despite the war in Ukraine and threat from Russia.
The chancellor's figures showed 3.6% nominal year-on-year (CAGR) increase from 2021 to 2025, said Citigroup, which would mean flat real defence spending against pledges from the Tories to increase it by 0.5% per year in real terms through the life of the government.
Citigroup added, however, that the Capital DEL (Departmental Expenditure Limit) for defence, a proxy for procurement, is forecast to grow at 8.6% CAGR in nominal terms or 4.8% CAGR real.
gainst that, the Resource DEL, for day-to-day expenditure, will shrink (2.2%) CAGR in real terms, which means teh government is keeping its powder dry said the broker.
“We believe the UK government is preferring to wait and see and potentially announce an increase in the Autumn budget - we believe an increase to 0.5% real growth is likely and 2.5% of GDP possible.”
Shares in weapons specialists BAE Systems and Babcock International rose by 1% to 742.6p and 0.6% to 335.9p respectively.