Key facts
- Defence stocks rallied following John Healey's appointment as Chancellor.
- Babcock International shares rose 7%, BAE Systems gained 3%, and Rolls-Royce increased nearly 2%.
- Investors anticipate increased defence spending and prioritization of UK firms.
- Healey previously resigned as defence secretary over insufficient military funding.
- An analyst cautioned that Healey faces competing fiscal demands.
Defence stocks rallied sharply on Tuesday following the appointment of John Healey as the new Chancellor. Investors are hopeful that Healey, who previously resigned as defence secretary over concerns about insufficient military funding, will prioritize and increase defence spending. Babcock International saw its shares surge by 7%, BAE Systems gained 3%, and Rolls-Royce increased by nearly 2%. QinetiQ also rose by approximately 4% on the FTSE 250.
Investors are anticipating that Healey might advocate for increased defence budgets, potentially through measures like 'war bonds,' a concept he has previously supported. His prior stance included arguing for defence spending to reach 3% of GDP, with a target of 3.5% by 2035.
However, Chris Beauchamp, Chief Market Analyst at IG, cautioned that Healey, in his new role as Chancellor, will face numerous competing fiscal demands beyond the Ministry of Defence's requirements. He suggested that securing additional funds for defence might be challenging, especially given the new Prime Minister's commitments to broad spending in other areas.
In related economic news, UK government bonds remained relatively stable, and sterling saw a slight increase against the dollar. Official figures released on Tuesday indicated that the UK government borrowed less than anticipated in June. Additionally, the government announced plans to reduce household electricity bills by an average of £45 annually from October, a policy expected to cost £850 million this financial year.