U.K. defense stocks jump 6.8% as new Treasury chief pledges more spending

U.K. defense stocks rallied Tuesday after Prime Minister Andy Burnham appointed former defense secretary John Healey as chancellor of the exchequer, with investors betting the new finance chief will boost military spending.

"We think it is very likely that Mr. Healey will now seek to boost U.K. Defence spending," J.P. Morgan analysts wrote in a note to clients.

Babcock International, which builds ships for the Royal Navy and manages the military's nuclear, air and vehicle assets, rose 6.8% to 11.08 pounds, leading London's FTSE 100 index. BAE Systems gained 3.3%, engine maker Rolls-Royce climbed 1.9% and defense technology group QinetiQ advanced 4.1%. European defense firms with U.K. exposure also benefited, with France's Thales rising 1.7% and Italy's Leonardo adding 3.8%.

Healey resigned as defense secretary in June, protesting what he called the government's failure to materially increase military spending. In his resignation letter, he called for the U.K. to spend 3% of gross domestic product on defense by 2030, up from the current target of 2.7% by the end of the decade. The U.K., like other NATO members, has pledged to spend 3.5% of GDP on its armed forces by 2035. As chancellor, Healey now controls the budget he previously criticized, putting him in a position to deliver the increase investors are betting on.

This article is for informational purposes only and does not constitute investment advice.