UK Defense Expenditure Driven by Counter-Terrorism

The UK is one of the major military spenders across the world, valued at US$60.8 billion in 2012. However, the country’s defense expenditure decreased at a CAGR of -2.00% during the period 2008-2012. Counter terrorism measures and peacekeeping operations have been key factors stimulating defense spending in the UK, and these will continue to drive the defense budget of the country during the period 2013-2017. Furthermore, expenditure is projected to decrease at a CAGR of -0.88% to reach US$53.5 billion by 2017. Budget cuts and resource optimization suggested by the Strategic Defense and Security Review 2010, and the withdrawal of troops from Afghanistan are expected to affect the budget allocations. The UK defense budget, which comprised 2.5% of GDP in 2012, is expected to decline to 1.6% of GDP by 2017 due to budget reductions.

Figure: UK Defense Expenditure, 2008-2012
The revenue expenditure of the UK’s defense budget is projected to decrease from 75.3% during the review period to 74.4% over the forecast period; whereas capital expenditure is expected to increase from 24.7% to 25.6%. The share of defense capability expenditure in the total defense budget is expected to increase slightly from 90.8% to 90.9%. The procurement of defense equipment and services, army, navy and air force expenditure, together constitute the defense capability expenditure.

Key opportunities for companies are expected be in top spending sectors such as border security, police modernization, counter terrorism, information management, fighters and multi-role aircraft and aircraft carriers. The MoD’s plans include the procurement of new Chinook helicopters, life extension of Apache, and the upgrade of Puma helicopters. Additionally, the UK is also procuring new armored fighting vehicles worth US$7.1 billion, construction of two new Queen Elizabeth class aircraft carriers, the Type 45 air defense destroyer, and the Astute class and Successor nuclear submarines.

Source: ASDReports - Market Research
Date: Feb 28, 2013