Share prices in European weapons companies have soared as investors anticipated significantly higher spending after the UK and France led an effort to form a peace deal for Ukraine.
Britain’s BAE Systems rose by 15% on Monday, Germany’s Rheinmetall gained 14%, France’s Thales increased 16% and Italy’s Leonardo was also up 16%. In London the surge in defence related shares helped to push the FTSE 100 to a new record high. It closed up 0.7% at 8871.31.
The moves continued a steep rally in defence stocks as investors expected big increases in defence budgets by European countries, stoked by fears that Washington would withdraw security guarantees.
Donald Trump has shocked longtime allies around the world by claiming that Ukraine is not “ready for peace”, three years after Russia launched a full-scale invasion. He has threatened to withdraw US support for the country after a public meeting with the Ukrainian leader, Volodymyr Zelenskyy, descended into acrimony.
The UK prime minister, Keir Starmer, said on Sunday Europe was “at a crossroads in history” as he hosted a summit in London with Zelenskyy and 18 other leaders, including France’s president, Emmanuel Macron, to try to form a peace deal to support Ukraine.
Defence bosses in Europe have long argued that weapons spending should be higher, and the prospect of the US removing its support has made politicians pay attention.
Shares in aerospace companies with significant defence revenues also rose on Monday. Airbus, the European passenger jet maker, rose by 5%, France’s Safran gained 3%, while the rally added to Rolls-Royce’s momentum after the British jet-engine manufacturer sent investors into raptures last week with strong results. Its shares gained 4% on Monday, hitting a record high.
The British defence technology company QinetiQ rose by 12%, while France’s Dassault Aviation gained 15%.
BAE, Britain’s biggest weapons maker, reported record orders last month as its annual profits topped £3bn for the first time in 2024. Its stock has more than doubled since the start of the war and the company is valued at £48bn.
Holger Schmieding, an economist at Berenberg investment bank, said: “Europe and Germany in particular must – and very likely will – raise defence spending for themselves as well as for Ukraine well beyond recent plans. The UK and Norway have already pledged additional support for Ukraine. Germany will probably do so shortly.”
Starmer announced last week that the UK would raise its spending on defence to the equivalent of 2.5% of GDP by 2027, three years earlier than planned and up from 2.3%. The increase in weapons spending will be funded through a deeply controversial cut in international aid spending.
Macron called on Europeans to increase annual defence spending to more than 3% of GDP to counter the threat from Russia. Germany’s likely new chancellor, Friedrich Merz, is also in talks to push through higher defence spending.
Analysts at JPMorgan said the events of the past two weeks had “turbocharged” their thesis of a European rearmament cycle, with leaders seeking to make more of their military equipment and import less from the US.
“There are 30 European countries in Nato and we expect many of them will soon commit to much higher defence spending,” they said in a note, Reuters reported.
