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LivestreamMenuIn a surprise move late on Monday, John Healey was announced as newly minted Prime Minister Andy Burnham ‘s finance minister. Much remains to be revealed about how the Burnham government will approach fiscal policy, but the appointment of Healey — who until recently served as ex-leader Keir Starmer’s defense minister — appears to have been received by markets as a boon for security stocks. European defense stocks jumped on Tuesday, with the U.K.’s Babcock International , QinetiQ and Avon Technologies among the top performers in the sector, adding 4.1%, 3.1% and 2% respectively. Last month, Healey resigned as Starmer’s defense minister, citing his view that the government was “unwilling to commit the resources that the nation needs to defend the country at this time of rising threats.” Starmer vowed last year to significantly increase defense spending, shortly before the NATO military alliance hiked its defense spending targets. However, a hole of about £4.7 billion ($6.3 billion) remains in the U.K.’s Defence Investment Plan. Defense stocks to watch In a Monday night note, Citi’s European Aerospace and Defense Analyst Charles J Armitage said the appointment of Healey as finance minister was “likely to be well received by the market as being good for defense stocks.” “As Chancellor, he will likely have many demands on spending, and how much he will be able to allocate remains to be seen,” he said. Armitage named a range of stocks poised to be potential beneficiaries. They included Babcock and QinetiQ, where the U.K. accounts for 60% to 65% of sales, BAE Systems , for which around 25% to 30% of sales are attributable to the U.K., and Thales and Leonardo , which have around 10% and 15% sales exposure, respectively, to Britain. Dan Coatsworth, head of markets at AJ Bell, said Healey’s appointment was “theoretically positive for the defense industry.” “There was always the risk that a new chancellor might argue that extra defense spending isn’t worth it, but investors are now taking the view that risk has been removed,” he told CNBC in an email. “The U.K. market is awash with defense stocks that are involved with domestic operations. These span BAE Systems, Babcock, and Rolls-Royce at the top end, to Qinetiq, Chemring and Cohort at the mid and lower ends.” While Tuesday’s rally implies renewed market interest in the sector, Coatsworth urged investors to exercise caution. “It is important to consider that so much good news has already been priced into defense stocks, and that this industry has a reputation for contract issues,” he said. “The defense sector is no stranger to project delays and cancellations, and increased government spending is not a guaranteed ticket to riches.” Ben Kumar, head of strategy for wealth, investment and public policy at London-based 7IM, told CNBC that although “we haven’t heard much from the new chancellor,” widespread opinion was that Healey would be “prioritizing his old stomping ground (the Ministry of Defense) as a key spending area.” While he said this was “probably right,” Kumar cautioned that some issues remain around U.K. defense spending, including availability of funds and complexities around government procurement processes. For large-cap defense companies like Babcock, Rolls Royce and BAE Systems, Kumar said Healey’s presence in the Treasury was “another favorable tailwind in a world which is already returning to defense spending.” “Revenues are growing at double digits, and the backlogs are building up (BAE Systems has an £84 billion order book, Rolls Royce ~£50 billion, Babcock ~£15 billion),” he said. But he added: “The more interesting opportunities are in the smaller cap space, where a big contract from the MoD could be transformational – companies like Filtronic, Avon Technologies or SRT Marine systems are much, much smaller, and preferential treatment would be a much bigger deal.” Read more All eyes are on John Healey, the UK’s new finance minister. Here’s what’s at stake UK’s Andy Burnham becomes PM as Trump slams Britain as ‘Poverty Stricken Disaster’ European defense stocks surged in 2025, as national governments hiked defense spending and the NATO military alliance ramped up its security spending targets. The Stoxx Europe Aerospace and Defense index ended last year up 56.5%, with some of the U.K.’s defense stocks major winners of the rally. Shares of Babcock International and Rolls-Royce more than doubled in value in 2025, while BAE Systems gained almost 50%. Speaking on CNBC’s “Squawk Box Europe” on Tuesday, George Godber, who manages the £781 million Polar Capital UK Value Opportunities Fund, said it was unlikely Healey would back away from seeing defense as a priority. “It’d be a bit odd if you’re the guy who’s resigned as defense secretary for not spending enough money, if you then get the top job to go, ‘sorry, I’m going to back end load it,’” he said. “I would have thought it’s in his interest [to push through], it’s also popular with the voters. It’s a pretty easy win now.” But Godber noted that questions remain about where the government will find the money to spend more on defense, given the bond market’s push for the continuation of Healy’s predecessor Rachel Reeves’ so-called fiscal rules. “Have a look at the intraday move in the gilt market yesterday,” he said. “The moment Burnham [said he] will be flexible on the fiscal rules, gilts [reacted], so the gilt market will control their policy.”Read More
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