The Daily Observer London Desk: Reporter- Victoria Smith
The value of European defence stocks has risen by more than £100bn this year as the Continent races to rearm.
An index tracking the biggest European munitions firms – including BAE Systems in the UK, Rheinmetall in Germany and Leonardo in Italy – has risen 34 per cent since January.
The rally comes as governments scramble to boost their military firepower amid fears they can no longer rely on the US to protect Ukraine against Russian aggression.
The sense of urgency was underlined this week when Germany tore up its stringent debt rules to fund a massive rearmament programme.
German Chancellor-in-waiting Friedrich Merz, who is seeking to form a coalition after his Christian Democrats emerged as the largest party in last month’s elections, said his country must do ‘whatever it takes’ to boost its defences.
The prospect of higher European demand for everything from weapons and ammunition to fighter jets, tanks and warships has sent shares in London-listed BAE Systems and Rolls-Royce to record highs this week.
Conflict: Ukrainian troops fire a cannon towards Russian territory in the Kharkiv region
UK-based firms Chemring, Babcock and QinetiQ also recorded huge gains. And on the Continent, Leonardo and Rheinmetall scaled new peaks, along with French company Thales and Sweden’s Saab.
Analysts at JP Morgan said Europe’s push to rearm has been ‘turbocharged’ by the realisation that countries cannot rely on the US for security and defence.
It follows Donald Trump’s decision to pause US military aid to Ukraine after a heated showdown with president Volodymyr Zelensky in the Oval Office last week.
‘There are 30 European countries in Nato and we expect many of them will soon commit to much higher defence spending,’ JP Morgan said in a note.
Keir Starmer has vowed to increase military spending from 2.3 per cent to 2.5 per cent of the economy by 2027 and 3 per cent by the next parliament. At an emergency summit of European leaders last week, the Prime Minister said the continent must do the ‘heavy lifting’ on defending Ukraine. EU Commissioner Ursula von der Leyen said rearming was ‘urgent’ and that governments ‘must prepare for the worst’.
Data from AJ Bell shows the Stoxx European Aerospace and Defence Index is worth £106bn more than at the start of 2025.
It has gained 9 per cent, or £35billion, this week – though defence stocks fell yesterday – and 170 per cent, or £260billion, since the start of 2022 when Russia was preparing its invasion.
