Brexit could hit the UK’s defence budget with higher costs – this was the warning from a keynote speaker at DPRTE 2017.
Professor Trevor Taylor of the Royal United Services Institute (RUSI), who addressed the conference held in Cardiff on 28 March, has examined the possible effects of the UK leaving the EU on economic growth and the strength of sterling.
He said that, assuming the UK Government sticks to the NATO target of spending 2% of GDP per annum on defence, a reduction in economic growth of 1% a year could cost the defence budget £4bn by 2026.
He also argued that the assumption made by the MOD in its plans was for a US$/£ exchange rate of 1.54. Unless the rate recovered from its current level of about 1.24 within the next two years, it would add £4.3bn to the UK’s defence imports bill over the next ten years.
He added that the MOD would then either have to keep to its import plans, leaving less to spend on UK suppliers, or shift spending from overseas to UK suppliers.
However, he also said there were signs the Government was planning to adopt a more active role in the economy through an industrial policy which could mean more support for defence businesses, particularly in the less prosperous areas of the North and West.
Prof Taylor said: “If we see a sustained devaluation then obviously our defence imports are going to be much more expensive than we’d anticipated.”
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