In the News Teaching Activity – how might an increase in UK spending on defence affect the economy? (Mar 2025)

Britain’s defence industry is bracing for a major boost as the UK accelerates military spending, aiming for 2.5% of GDP by 2027.

The UK’s defence sector is poised for a financial windfall as higher military spending injects billions into firms like BAE Systems, Rolls-Royce, and Babcock. With an extra £6bn allocated, share prices of defence companies have surged, fuelling investment plans in shipbuilding, aerospace and arms manufacturing. Increased defence outlays could strengthen domestic supply chains, reduce reliance on US imports and create skilled jobs, but concerns remain over cost escalation and labour shortages. On the global stage, ramped-up production may bolster UK arms exports, reshaping trade relationships while reinforcing Europe’s defences against geopolitical threats.

UK defence spending is about to boom – can British firms step up? | Business | The Guardian

1. Explain how an increase in government spending of £6bn on defence could lead to a multiplied impact on national income.

2. Discuss the likely impact of the planned increase in defence spending on the profits of a business such as BAE Systems.

3. Discuss the possible problems that may prevent the UK economy reaping the full potential benefits from the increase in investment in defence.