The UK defence industry, a driver for growth?

The UK has attracted millions in foreign investment in defence in the past few years, and defence has contributed significantly to the UK economy. But government messaging is key, and the defence industry is waiting for the right signals. 

The 2025 Strategic Defence Review (SDR) explicitly links Britain’s economic growth to defence, recommending that “Defence should more purposefully use its market power to create economic growth.” This recommendation makes it timely to examine the British defence industry’s current economic contributions. Calibre Defence met with Aimie Stone, Chief Economist at ADS, to delve into their recent report, “Aerospace, defence, security and space: Building a Secure and Prosperous Legacy,” which details each sector’s value to the UK.

The report highlights the British defence industry’s 2024 contributions:

• £36.4 billion in turnover, representing approximately 1.28% of the UK’s GDP and a 64% increase since 2014.
• £15 billion in value added, signifying that the UK defence industry produces goods far more valuable than their raw materials. 
• £13.7 billion in exports, marking 52% growth over the past decade.
• 181,500 direct employees, a 30% increase since 2014, with an average productivity of £82,700 per employee per year.

“52% growth in ten years does sound impressive, but the majority of this growth has actually been in the past three years,” Aimie explained from the ADS office in London, adding, “Now it is about how we ensure that defence and economic growth are working together.” This 10-year timeframe is significant, as UK defence spending began decreasing from 2010 due to successive governments grappling with the 2008 financial crash’s aftermath. 

“The demand signal from the government is foundational to [the defence] industry, we need that from them,” Aimie clarified, emphasising the government’s role as the sole customer for the defence industry. Reduced government spending and cancelled programmes can harm the market, potentially deterring private capital from entering the UK. However, the Labour government’s commitment to increasing the percentage of GDP spent on defence is already attracting investment firms and driving increased investment.

The ADS figures confirm this growth, with £1.7 billion invested in capital expenditure (CapEx) in 2024. Examples of CapEX investments include extensions to the BAE Systems Barrow-in-Furness shipyard, Rheinmetall’s plans for a barrel production facility, Sheffield Forgemaster’s significant investment in large-calibre barrel production in the UK, and Helsing’s recently announced Resilience Factory. Such strategic investments boost production capacity and output, indicating companies foresee continued growth in the UK. However, Aimie noted that more is needed. “The number one recommendation from the Defence and Economic Growth Taskforce is, ‘get the signalling right,'” she stated. This Taskforce, comprising members from financial institutions, government officials, and industry (including ADS), aimed to provide guidance on how to maximise the societal value of the UK’s defence investment.

The UK has actively encouraged private capital investment in its defence industry. The Conservative government under Rishi Sunak even held a 2023 meeting with asset managers to lower investment barriers. The SDR and Defence and Economic Growth Taskforce have reinforced this message, with early positive signs. Investment in European defence startups jumped 24% in 2024 to £4 billion, according to PA Consulting. However, much of this concentrated on a few large deals, with 65% originating from the US. While some British companies, like Arondite, which raised £8.97 million in seed funding in 2025, have succeeded, the origin and accessibility of capital remain crucial questions. For instance, are British companies truly sovereign if they rely on American funds?

“We have done a lot of research with our own members to understand the ease of access to capital,” Aimie explained, adding, “At the moment, there are a lot of different financial requirements, which inevitably means there are some things that need to be ironed out.” Another consistent concern among defence SMEs is the nature of orders and contracts. Defence procurement’s cyclical pattern, with large orders followed by production halts, is unappealing to private equity investors or banks. “There are high street lenders saying they want to do debt financing for the defence industry, but need to know the companies that are on long contracts,” Aimie elaborated.

The importance of Government signalling

This underscores the importance of government signalling. Without clear demand signals, banks and investors face increased risk, making financial support uncertain. This also forces smaller companies to manage cash flow precariously between sporadic orders. The extended timeframes for orders to materialise can also deter investment, as some firms seek to exit within five years, while securing an MoD contract might take just as long. “It will be interesting to see if the defence time scales are right for VCs and investment companies,” Aimie observed.

So, what does this tell us about defence’s value to the British economy? In essence, it’s strong, generating healthy revenue and increasing direct investment. Aimie believes its promise is even greater: “We’ve got to show confidence and economic deterrence to the world. £15 bn in value add is a really good place to start to show the strength of the industry and one that can grow even bigger.” However, this hinges on clear signals: “Capital follows contracts.” Aimie concluded by noting the SDR’s lack of detail, with the UK’s defence industry now awaiting the Defence Industrial Strategy – expected in September – to reveal the government’s procurement priorities.

Substantial capital has been raised because companies and investment firms recognise the UK’s growth potential, contributing to 181,500 jobs and millions in CapEx and intellectual property investment. However, if companies establishing roots and teams in the UK do not secure contracts, the appeal of private investment will wane, and this burgeoning ecosystem will ultimately decline. The MoD must therefore innovate, spending more with non-traditional defence companies and structuring new system procurements in ways that attract investors, if the government intends to realise its vision of defence as an economic growth driver.

By Sam Cranny-Evans, published on September 26, 2025. The lead image is a cartoon showing the impact of the wrong government signals on defence investment. It was generated by AI.