UK defence and outsourcing spending may be recovering

It may be a little early to see signs of an overall recovery but today’s Times (subscription required to see the full link) reports that Babcock has secured a £360m contract to supply vessels and parts for the Royal Navy.

This is a seven-year contract and the report hails it as a major win for Babcock, which it undoubtedly is and shareholders have seen to it that the price has rallied as a result. On the other hand we maintain that a single contract isn’t the same as an entire sector recovering, much less that an entire economy is starting to do better as would be required for the UK’s defence spending to pick up substantially.

The key to the speculation that outsourcing itself will pick up in defence is that the UK’s armed forces have previously performed these tasks themselves. Again, we’d suggest this needs to be proven as a trend rather than a one-off before we start hailing the recovery of an entire market sector.

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