A fair wind for arms as defence budgets soar

Spending increase driven by US but doubts cast over UK’S investment by fall in value of the pound

Spending on defence is expected to reach its highest level since the Cold War peak of the Eighties, driven by increases in the US arms budget. Data prepared by analysts for The Daily Telegraph forecast that arms spending will hit $1.67trillion in the coming year, 3.3pc up on last year.

GROWING global tensions mean defence spending is about to hit its highest level since the Cold War peak of the Eighties.

Data prepared exclusively for The Daily Telegraph by IHS Markit Jane’s defence analysts forecast that arms spending will hit $1.67 trillion in the coming year – overtaking the recent high seen in 2010 of $1.63trillion.

Little data exist about the Soviet Union’s defence spending when the Cold War was at its most intense, but Jane’s experts believe that in the mid to late Eighties global funding for defence was between 10pc and 20pc higher than the current level.

The total expected spending for 2018 is 3.3pc up on last year’s figure and is being driven by the US – the world’s best funded military, accounting for 40pc of global defence budgets.

American forces are expected to benefit from a 4.7pc funding increase under President Donald Trump to $673.3bn in 2018.

The arms budget in Britain – the world’s fourth biggest defence spender – is expected to edge up 1.2pc to $51.8bn in 2018, continuing the reversal which started in 2017 of a long-running downturn in spending for arms and troops. The UK defence budget fell by an average of 1.7pc a year under the Coalition government from 2010 to 2015, but this ended in 2016 when the Conservatives pledged to boost spending by 0.5pc and keep it at 2pc of GDP.

This level was seen as enough to fund the £178bn equipment plan going out to 2025/26 to kit out the UK’S forces with equipment including new domestically built aircraft carriers and submarines, as well as buying P-8 spyplanes, Apache helicopters and F-35 fighters from the US. However, Fenella Mcgerty, principal analyst at Jane’s, warned that the fall in sterling since the EU referendum and lower projections of the UK’S economic growth mean that the spending plans are now in doubt.

She added: “Sterling was at $1.55 when the equipment plan was set but is now at $1.34, making Us-based equipment programmes far less affordable.

“If the low value of the pound against the dollar persists, programme reductions will become more likely.”

She added that billions of pounds of planned savings the MOD hoped to find have yet to be identified, raising further doubts about whether the UK’S forces will get the kit they were expecting.

The current review of the UK’S forces – which has raised the prospect of the Navy’s amphibious landing ships and 1,000 Royal Marines being cut – to generate savings to make other purchases possible is “highly necessary”, Ms Mcgerty said.

She added: “If another ‘black hole’ emerges, the MOD could again face personnel and equipment cuts although the magnitude is unlikely to be as high as those identified in the 2010 defence review.”

Jane’s research also highlighted stabilising defence spending in Western European nations after a long period of decline, with regional outlays on defence expected to rise by 1.3pc in 2018.

Worries about an increasingly aggressive Russia – in the wake of Vladimir Putin’s annexation of Crimea in 2014 – have made Eastern Europe the region with the fastest growing defence spending.

In 2018, military spending in the Baltic will be double the level it was in 2014 in real terms.

However, Russia’s defence spending is expected to decline for a second consecutive year running in 2018, down to $43.1bn, ranking it as the sixth largest spender in the world, behind Saudi Arabia.

The second and third highest spenders are forecast to be China at $203.3bn and India at $54.8bn.