BAE Systems and Rolls-Royce reap rewards from higher global defence spending

Higher defence spending amid global conflicts is delivering a boost to Rolls-Royce and BAE Systems as the FTSE 100 stalwarts upgraded their annual outlooks after solid half-year figures.Engine maker Rolls surged to the top of the FTSE 100 Index as shares jumped 6% in morning trading on Thursday thanks to a solid profit guidance upgrade.It now expects to post underlying operating profits of £4.7 billion to £4.9 billion for 2026, up from previous guidance for between £4 billion and £4.2 billion.The upgrade follows results showing underlying earnings surged 46% to £2.53 billion in the six months to June 30 on revenues a fifth higher at £11.28 billion.BAE Systems CEO Charles Woodburn recently warned over UK defence spending (Andrew Matthews/PA)PA ArchiveThe group is benefitting from higher global defence spending, adding to greater civil aerospace demand and as rapid AI data centre rollouts bolster its power systems division.But statutory pre-tax profits more than halved to £1.93 billion from £4.84 billion a year ago due to exchange rate movements and after selling off parts of the business.Defence contractor BAE Systems hiked its profit outlook, with a 10% to 12% rise in underlying earnings expected for 2026, up from the 9% to 11% previously forecast.Underlying earnings rose 11% in the half-year on sales 9% higher, while pre-tax profits rose to £1.28 billion from £1.19 billion a year ago.Listed firms operating in the defence sector have been enjoying stellar gains as countries bolster their defences amid growing global conflict, after the Iran conflict and Russia’s ongoing war with Ukraine.The appointment of former defence secretary John Healy as Britain’s new Chancellor has given the sector a further fillip.New Chancellor John Healey (Stefan Rousseau/PA)PA WireNew Prime Minister Andy Burnham has said he wants to increase defence spending, though he has yet to commit to 3% of national income by 2030.Read MoreLast month, Mr Healey resigned as defence secretary from Sir Keir Starmer’s government after accusing the former prime minister and then chancellor Rachel Reeves of putting the country’s security at risk, with its long-awaited defence investment plan.BAE’s chief executive Charles Woodburn recently warned that defence spending in the UK “falls well short” of what is required.He described the current climate as “the most threatening time I’ve seen” and warned of the advances made by Russia before and during the war with Ukraine.Despite extra funding pledged in June, he told the BBC it still “falls well short of what is needed to protect the country”.