United Kingdom Defence and Security Report Q3 2009

As the recent procurement cuts underline, the UK defence industry is hostage to the macroeconomic environment and spending priorities of the government. The current deep recession, huge budgetary deficits and collapsing house prices have seriously harmed consumer and investor confidence in the economy. As a result, certain procurement programmes could come under closer scrutiny owing to the Smart Acquisition initiative, and be more susceptible to an early closure. BMI has revised down its UK real GDP forecast for 2009 from -3.5% to -4.2%, and has left our 2010 forecast at 0.0%. The dire Q109 numbers have been a major driver behind our revisions and we also note the ongoing increase in the volatility of real GDP growth. UK real GDP growth declined by 1.9% q-o-q and 4.1% y-o-y in Q109.

Despite the distressing economic figures, in May 2009 the UK government announced that it would be purchasing a third tranche of Eurofighters with the contract likely to be signed by the end of the year. The future of the contract had been in doubt as economic recession has severely impacted the main partners in the Eurofighter programme ??