Following the news that the value of the pound has plummeted;

Madeline Wild, Aerospace, Defense & Security Analyst at GlobalData, a leading data and analytics company, offers her view:

“The weakening of the pound against the US dollar will make it harder for the UK government to fund the £100 billion 2030 defense budget that was recommitted by Defence Minister Ben Wallace yesterday. This budget was already ambitious in the current fiscal environment, even prior to the currency devaluation we’re seeing today. The British government is already borrowing a huge amount; to nearly double the defense budget by 2030 will have a significant impact on state spending as a whole.

“Even if the Bank of England increases inflation rates in response to the crisis, the enormous growth rate set out by the defence minister will be difficult to meet. Inflation puts increased pressure on the state’s budgets by inflating the prices of multi-year contracts and increasing the cost of programs that had been planned (i.e. in multi-year equipment plans). This means that the allocated budget can cover less ground in terms of what can be achieved through even the most scrupulous budgetary allocations. This will make the already huge challenge of nearly doubling the budget in a year much greater.

“Furthermore, the purchasing power of the pound in the US has dropped to its lowest ever, meaning that buying goods and services from America is now far more expensive for those holding the pound. According to GlobalData, 23% of the Ministry of Defence’s (MoD) funds currently allocated for platform acquisitions for the period 2022–2032 have been awarded to US suppliers, highlighting the importance of the relationship between the UK and the US.

“If the devaluation problems continue in the longer term, then there is propensity for both ongoing and planned procurement programs to suffer. Many ongoing procurement programs for large platforms are governed by multi-year contracts, thus spreading the cost but making them vulnerable to fiscal changes. This will increase the pressure placed on the UK’s defense budget as it adjusts to unforeseen price hikes. For planned programs, if the pound remains weak against the dollar in the longer term, it could result in US contenders being too expensive.”