Britain Re-arms for a New Era
On June 2, 2025, UK Prime Minister Keir Starmer unveiled a comprehensive Strategic Defence Review, marking a significant shift towards "war-fighting readiness" in response to escalating global threats, particularly from Russia. Key initiatives include a planned increase in defence spending to 2.5% of GDP by 2027, with an ambition to reach 3% in the subsequent parliamentary term. The review outlines substantial investments: £15 billion in nuclear warhead modernization, construction of up to 12 new nuclear-powered submarines under the AUKUS pact, establishment of six munitions factories, and acquisition of 7,000 long-range missiles.
Additionally, a new Cyber and Electromagnetic Command will be established to bolster cyber defence capabilities. While these plans aim to enhance national security and stimulate economic growth through job creation, they have sparked debates over funding sources, potential impacts on social services, and the feasibility of meeting the ambitious spending targets. Critics express concern over the lack of a definitive timeline for achieving the 3% GDP defence spending goal and the possible reallocation of funds from other critical areas.
Forecast Scenario Tree: UK Defence Strategy (2025–2030)
Base Case – 60% Probability
The UK reaches its defence spending target of 2.5% of GDP by 2027 and partially executes the Strategic Defence Review. Key programmes such as the construction of six munitions factories, the acquisition of 7,000 long-range missiles, and the formation of a Cyber and Electromagnetic Command are implemented on schedule. Nuclear modernization begins, but the delivery timeline for all 12 submarines under AUKUS extends beyond the decade. Job creation reaches between 200,000 and 300,000, mostly concentrated in industrial and northern regions. The UK strengthens its position within NATO without overcommitting to US-led global policing, and investor sentiment in the defence sector improves steadily. However, fiscal pressure prevents full execution of long-term ambitions like hitting 3% of GDP.
Upside Scenario – 25% Probability
Driven by a stable macroeconomic environment, broad political support, and intensifying geopolitical threats (particularly from Russia or China), the UK accelerates its defence agenda and reaches or exceeds 2.8% of GDP by 2030. All major projects are implemented or fast-tracked, including the full submarine fleet, long-range missile stockpiles, and cyberwarfare integration with AUKUS and NATO allies. Domestic industry thrives, with 400,000+ jobs created and significant spillover into STEM and advanced manufacturing sectors. The UK re-establishes itself as a leading Western military power, deepening ties with the US and Pacific partners. Defence sector stocks surge, and long-term public support for increased national security investments solidifies.
Downside Scenario – 15% Probability
Economic stagnation or a political pivot undermines the Strategic Defence Review’s momentum. A fiscal crisis, change in government, or sustained public opposition to military spending leads to stalled progress. Defence spending peaks at around 2.2% of GDP, and major components—like submarine construction or cyber command—are delayed, downsized, or cancelled. Job creation falls well below expectations, closer to 100,000, and some factories or contracts are mothballed. The UK’s credibility within NATO weakens, and reliance on the US for strategic defence increases. Markets interpret the pullback as a signal of constrained long-term capacity, dampening investor confidence in the domestic defence sector.
