The UK’s Defense Expenditure will Register a CAGR of -2.04% Despite Budget Cuts.

Tuesday 18 September 2012, Amsterdam

The UK’s defense expenditure, which values US$61.91 billion in 2012, recorded a CAGR of -2.41% during the review period (2008-2012). It is expected to register a CAGR of -2.04% over the forecast period (2013-2017), to reach US$52.21 billion by 2017. Over the forecast period the UK’s cumulative defense expenditure is expected to value US$276 billion, of which the nation is expected to spend US$264.7 billion on defense capability and the remaining US$11.3 billion on peace keeping and war pension benefits (reference graph).

The UK government has announced a reduction in defense expenditure over the next five years in order to control the country’s increasing fiscal deficit. Such reductions will lead to a decline in procurements and are expected to have a negative impact on domestic defense companies. The announcement of defense budget cuts followed the Strategic Defense and Security Review conducted in October 2010 and follows many other countries that have already cut their defense budgets, resulting in a contracted global defense market. Consequent to the government’s decision to decommission the Nimrod and Harrier jets, BAE Systems, a predominant supplier of the MoD, announced 1,300 potential job cuts in December 2010.

The MoD protects domestic defense companies by allowing only direct offsets to foreign exporters and by encouraging foreign bidders to use UK sub-contractors on a competitive basis. In addition, the UK government gives priority to domestic companies in meeting its Urgent Operational Requirements. Since the UK is a member of the EU, defense procurements for goods and services are conducted in accordance with the EU Procurement Regulations .