The UK Modern Industrial Strategy puts defence at the centre of the government's growth plan, backing it as one of eight high-growth sectors, the IS-8. For defence, the vision is for the UK to be a "leading tech-enabled defence power" by 2035, and the money behind that vision is now starting to move.
This page is our analysis of what that means for defence companies and their supply chains, and what to do about it now. For the wider picture across all eight sectors, start with our UK Modern Industrial Strategy overview.
Why defence, and why now
Core defence spending is set to rise to 2.6% of GDP by 2027, with an ambition for 3% in the next Parliament and a NATO-aligned pledge toward 3.5% by 2035. The Financial Times has called this the largest sustained increase since the end of the cold war. The government's own framing has shifted from a "peace dividend" to a "defence dividend," treating defence spending as an engine for industrial growth as well as national security.
For your business, the scale is the point. Defence already supports more than 200,000 jobs across the UK, with nearly 70% of spending outside London and the South East. ADS, the aerospace, defence and space trade body, estimates that reaching 3% of GDP by 2035 would create around 50,000 additional jobs in the sector, rising to an extra 85,000 if spending reaches 3.5% (Financial Times, September 2025). Kevin Craven, chief executive of ADS, put it plainly: the value the sector provides to the economy is "increasingly critical to innovation and prosperity." ADS also reports the UK's aerospace, defence, security and space sectors already employ over 427,000 people at 46% above average productivity, with civil aerospace sitting on a record order backlog that could add £250 billion to the economy over a decade if supply chain bottlenecks are cleared (ADS).
That growth is already visible in real contracts. Norway has agreed to buy at least five Type 26 frigates built primarily in Glasgow by BAE Systems, a deal worth about £10 billion, with further warship talks under way with Denmark and Sweden. In Sheffield, BAE has invested £25 million in a new factory to build howitzer components, creating 200 high-skilled jobs and supporting 60 businesses across the UK supply chain (Financial Times, January 2026). Behind it, Sheffield Forgemasters is being recapitalised through a 10-year, £1.3 billion government-funded plan.
What are the opportunities for defence companies
The UK Modern Industrial Strategy and the Defence Industrial Strategy 2025 address the challenges defence companies face and open up real opportunities.
Increased investment and access to finance. The uplift in defence spending is designed to revitalise the industrial base. The National Wealth Fund, whose remit was changed specifically to allow defence investment, will deploy £27.8 billion into technologies with civil and military applications and into supply-chain resilience. The British Business Bank's Industrial Strategy Growth Capital commits an additional £4 billion to IS-8 companies including defence, with direct investments up to £60 million, as its overall capacity rises to £25.6 billion. The National Security Strategic Investment Fund will provide up to £330 million for companies addressing national security and defence capability. UK Export Finance has up to £80 billion to back exporters.
Innovation and technology development. The strategy focuses on dual-use technologies that serve both growth and national security, including advanced materials, AI, autonomy, cyber, quantum, semiconductors, and space. Quantum is a clear dual-use example with strong roots near us: the University of Sussex's Sussex Centre for Quantum Technologies recently set a world record in quantum sensing, with applications spanning underwater detection, navigation, and secure communications, and Universal Quantum is building quantum computers nearby in Haywards Heath, part of the £670 million the strategy has put behind quantum. The Ministry of Defence will aim to spend at least 10% of its equipment procurement budget on novel technologies such as drones and AI-enabled systems, and UK Defence Innovation has launched with an initial £400 million budget to pull innovative ideas through to production.
Pulling smaller suppliers into major programmes. This is the part that matters most for the companies we work with. A new £65 million Defence Office for Small Business Growth and Office for Defence Exports is designed to bring more small and medium suppliers into the supply chain, and procurement reforms under the Procurement Act 2023 set targets for direct spend with SMEs. A new Supply Chain Centre will review critical supply chains and monitor resilience.
Skills and workforce. A £182 million Defence Skills package will establish five Defence Technical Excellence Colleges, alongside a more flexible Growth and Skills Levy and a £54 million Global Talent Fund. There are also temporary exemptions from the Skilled Worker visa threshold for crucial defence occupations.
Place-based growth. Defence work is concentrated in clusters: Glasgow for shipbuilding, Northern Ireland for missile manufacturing, the North West of England for combat aircraft and submarines, and Plymouth as a National Centre for Marine Autonomy. Defence Growth Deals, now launched with £250 million across Plymouth, South Yorkshire, Scotland, Wales, and Northern Ireland, are backing these local ecosystems directly.
What's live now
Several programmes are already open or imminent: the £250 million Defence Growth Deals, the £182 million Defence Skills package and its five Technical Excellence Colleges, the £65 million Defence Office for Small Business Growth, and UK Defence Innovation's £400 million budget. The export pipeline, from the Norwegian frigate deal to ongoing talks across Europe, is creating immediate supply-chain demand for companies that are ready to be found.
The honest picture, and why it works in your favour
It isn't all moving quickly. At the DSEI defence trade show, executives told the Financial Times the mood was one of frustration at the pace of change, with one founder describing a "say/do gap between rhetoric and the continued lack of MoD spend" (Financial Times, October 2025). Larger contractors can absorb a slow pick-up; the hundreds of small and medium companies in the supply chain rely on contracts and access to capital, and many are chasing export deals to keep production lines moving.
That is exactly why visibility matters now rather than later. The work that is flowing today, export contracts, Growth Deal projects, and supplier nominations, goes to the companies a buyer or prime contractor can find, verify, and trust quickly. When budgets are tight and timelines slip, being obviously ready is what gets you into the room and onto the shortlist. The companies that wait for a perfect, fully funded procurement programme will be competing against suppliers that made themselves easy to choose months earlier.
What to do now
We apply a structured 3-step process to ensure your company shows up and stands out from the first supplier search to the final shortlist. DASIS is a good example. The website we built helped them start working with Lockheed Martin and gain accreditation for the MOD supply chain, while still protecting the NDAs their work depends on.
Step 1: Foundations and conversion
Step 2: Trust and consideration
Step 3: Awareness and network scaling
This is the heart of our marketing for defence companies and B2B lead generation work: turning rising defence investment into qualified enquiries.
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Let's talk
You can speak with Simon Batchelar, Co-Founder and Marketing Strategy Consultant at Pallant, who has prepared this analysis and can discuss how your business can position itself to benefit from the funding and support available.
Sources and further reading
- UK Modern Industrial Strategy (full policy paper)
- The UK's Modern Industrial Strategy, including the Defence Industrial Strategy (gov.uk hub)
- Industrial Strategy Sector Plans
- Quarterly update: July to September 2025
- Industry analysis: ADS, the trade body for aerospace, defence, security and space.
- Local quantum cluster: the University of Sussex's Sussex Centre for Quantum Technologies and Universal Quantum.
- Commentary (Financial Times): UK to kick off new defence industrial strategy with £250mn (September 2025); Defence companies sound warning to the UK (October 2025); From steel to guns: inside Britain's newest arms factory (January 2026).
Last reviewed June 2026. We update this analysis as the government publishes new commitments and quarterly delivery data.