The United Kingdom is preparing for a significant expansion in its defence budget, with a particular emphasis on emerging technologies such as unmanned aerial vehicles (UAVs), commonly known as drones. Chancellor John Healey announced that the current defence budget is £14 billion higher than at the end of the previous government’s tenure. He also confirmed plans to meet NATO commitments by allocating 3.5 percent of the country’s gross domestic product to defence spending by 2035, setting an interim target of 3 percent by 2030.
The government’s Treasury report underscored the necessity of this increase, citing threats from Russian aggression, ongoing Middle East conflicts, and rapid technological advancements as key drivers for strengthening the UK’s armed forces and defence industrial base. In alignment with these priorities, the Ministry of Defence (MoD) will establish a new drone unit aimed at reducing bureaucratic hurdles and accelerating investment in UK-manufactured UAVs.
As part of a broader £5 billion allocation for autonomous systems over four years, the MoD plans to invest £400 million specifically in army drone capabilities. This follows the UK’s reported supply of approximately 85,000 drones to Ukraine over six months, although Ukrainian forces are estimated to deploy around 9,000 drones daily in their conflict with Russia.
BAE Systems, the UK’s largest defence contractor and a FTSE 100 company, described itself as the largest drone manufacturer outside Ukraine, with a portfolio encompassing strike drones, surveillance platforms, logistics vehicles, and high-altitude pseudo-satellites. The company is also developing autonomous combat systems. BAE’s share value has risen substantially since early 2025, reflecting increased investor confidence in defence stocks amid heightened geopolitical tensions.
Other publicly traded UK companies involved in defence-related activities include Rolls-Royce, Melrose, Babcock, QinetiQ Group, and Chemring. However, many leading drone manufacturers remain privately held, limiting investment options for shareholders. Among these, QinetiQ is relatively small compared to BAE, and companies like Rolls-Royce and Chemring contribute mainly by producing components for UAVs rather than manufacturing the drones themselves.
Dividend yields and income from these companies vary, with BAE offering a notable 1.9 percent yield and robust dividend growth over the past five years. This contrasts with exchange-traded funds (ETFs) specializing in defence stocks, such as the HANetf Future of Defence ETF and the iShares Global Aerospace and Defence ETF, both of which have shown recent declines in share value and generally offer limited or no dividend income.
Investment trusts focusing on space and defence technologies, such as Seraphim Space Investment Trust, have benefited from growing demand for satellite capabilities linked to national security. Seraphim reported a three percent increase in share price following the budget announcement, with a significant portion of its portfolio allocated to European defence and satellite technology firms.
The government emphasizes encouraging private sector investment in defence to bolster national security and support jobs across the UK, with targeted reindustrialization in locations including Barrow, Rosyth, Aldershot, Plymouth, Glascoed, and Belfast. As global security challenges evolve, these developments mark a notable shift in UK defence strategy and its associated economic landscape.