Defence stocks rose yesterday on hopes of increased military spending under the new Chancellor.

John Healey has been handed control of the Treasury by Andy Burnham, a little over a month after quitting as Keir Starmer’s Defence Secretary in a row over a lack of funds for the Armed Forces.

Investors believe he will ramp up military spending after accusing Starmer and former Chancellor Rachel Reeves of leaving Britain vulnerable by failing to plug a black hole in the defence budget.

Shares in Babcock, which builds warships for the Royal Navy, rose 4.1 per cent, BAE Systems gained 1.8 per cent, Rolls-Royce advanced 1.1 per cent and Qinetiq added 3.1 per cent. 

However, it is unclear how Healey intends to raise the money, after long pushing Starmer and Reeves to outline plans to increase defence spending from 2.6 per cent of GDP towards Nato’s target of 3.5 per cent.

UK borrowing costs also remain elevated, with ten-year gilt yields rising to a two-month high above 5.05 per cent yesterday, amid concerns over Prime Minister Burnham and Healey’s spending plans.

Tina Cook at investment bank Raymond James said: ‘Investors will be watching closely to see whether Healey can deliver the defence investment he has spent years arguing for.’