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Defence Stocks Surge After PM Pledge

(c) Sky News 2015

Defence and aerospace company shares lead the FTSE 100 Index as David Cameron sets out plans to overhaul Britain's defence spending.

Rolls Royce (LSE: RR.L - news) and BAE Systems look set to benefit from the increased military expenditure being announced by Mr Cameron in the House of Commons .

Rolls Royce and BAE shares were up 3.6% and 1.3% respectively. Babcock International (LSE: BAB.L - news) , which also operates in the defence sector, climbed 1.9%.

Mr Cameron's commitment to buying new defence equipment comes after a widely criticised review in 2010 that savaged the military and left Britain's Armed Forces without vital capabilities.

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In light of the attacks in Paris, the Government has already revealed some of the detail including £2bn of extra money for the Special Forces, £1.9bn over five years for GCHQ and 1,900 extra spies for the intelligence agencies.

Shares (Berlin: DI6.BE - news) in defence firms have risen steadily so far this year, with analysts expecting continued demand as Governments look set to escalate attacks on Islamic State.

IG (LSE: IGG.L - news) 's senior market analyst, Chris Beauchamp said: "The prime minister’s defence review has been somewhat upset by recent events, but this has proven to be good news for BAE and Rolls-Royce, which have risen today on expectations that the UK will boost its armed forces to help cover the twin problems of a resurgent Russia and fresh terror threats."

The Government plans to spend £178bn over the next decade on strengthening the UK military and security services.

This budget is £12bn more than the amount previously communicated and includes buying nine new Boeing P8 maritime patrol aircraft for maritime surveillance, anti-submarine and anti-surface ship warfare.

This news will be welcome to Rolls Royce who have suffered five profit warnings in 20 months.

In the US fighter jet maker Lockheed Martin (Swiss: LMT.SW - news) shares hit an all-time high last week and are now nearly 19% higher than they were this time last year.