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Financial services are planning to pump cash into the UK’s defence sector next year after facing pressure to ramp up investment amid increased geopolitical tensions.
Nearly two-thirds of financial services leaders expect the sector to increase investment in UK defence in 2026, with more than a quarter anticipating that investment will rise “much more” over the next year.
The fresh figures, which come from KPMG’s UK Financial Services Sentiment survey, follow criticism of lending to defence firms amid concerns about environment, social and governance (ESG) policies.
In a letter earlier this year, over 100 Labour MPs and peers urged British banks and fund managers to ditch “ill-considered anti-defence rules” and switch on “the financial taps to the firms that stand ready to deliver the best of British innovation, capability and skills”.
The letter also warned constrictive ESG policies “often wrongly exclude all defence investment as ‘unethical’” and called for reform to rules blocking investment.
UK hikes defence spending
Sir Keir Starmer hiked defence spending in 2025, committing to reaching 2.3 per cent of GDP in 2024 and aiming for 2.6 per cent in 2027.
The government’s long-term goal is for five per cent of GDP to be allocated to national security, following pressure from President Donald Trump on NATO countries to increase defence spending.
The head of the British armed forces, Sir Richard Knighton, warned earlier this month that growing threats would require the “whole nation stepping up”.
ADS – the industry body for aerospace, defence, security and space industries – has argued that defence firms in the UK face higher regulatory barriers when securing bank accounts.
In funding defence firms, financial services have come under public fire with a series of ‘red paint’ divestment attacks. Earlier this year, Palestine Action – which has since been proscribed as a terrorist group after its vandalism on a naval base – JP Morgan’s City of London office was targeted.
Defence stocks have rallied across the FTSE 100 index as demand increased. BAE has jumped nearly 50 per cent so far this year, Rolls-Royce just short of 100 per cent and Babcock 145 per cent.
The boss of Babcock – which plays a significant role in supporting the UK’s nuclear submarine program – hailed a “new era for defence” earlier this year after posting a 50 per cent surge in operating profit.
