UK IT firms eye defence growth as confidence rises

UK IT and telecoms businesses expect to increase their involvement in the defence sector over the next 12 months, according to Barclays research, which found growing confidence in the Government's Defence Investment Plan.

Among the firms surveyed, 62 per cent said they expected their involvement in the UK defence sector to rise over the coming year. Meanwhile, 76 per cent believed the Defence Investment Plan would create meaningful growth opportunities for UK companies, and 59 per cent said it had increased their confidence in the UK as a place to enter or participate in defence supply chains.

The findings also point to expectations beyond direct defence work. Nearly two-thirds of respondents, 62 per cent, said the plan would have a positive impact on their region, while 61 per cent expected a positive effect on their own business.

Business leaders said the main opportunities lay in skills and workforce development, cited by 66 per cent of respondents. Increased investment in research and development of new technologies followed at 59 per cent, while 52 per cent pointed to new contracts and opportunities across local supply chains.

That optimism appears to be feeding into recruitment and spending plans. Six in 10 of the IT and telecoms businesses surveyed said they expected to recruit new staff over the next 12 months to support defence-related contracts.

Almost half said they planned to increase investment in research and development, at 49 per cent, and in digital, cyber or advanced technologies, at 48 per cent. A further 41 per cent said they intended to invest more in workforce training and skills development.

Barriers remain

Despite the positive outlook, respondents also identified several obstacles to deeper participation in defence supply chains. Skills shortages were cited by 33 per cent of firms, making them the most commonly reported barrier, followed by capacity constraints at 28 per cent.

Procurement emerged as a central concern. More than a third of respondents, 37 per cent, said faster, clearer and more efficient procurement processes would be the single biggest factor influencing their decision to work with the UK defence sector.

The same share, 37 per cent, said access to financing, scale-up capital or working capital would be a key enabler. Another 29 per cent said government co-investment or guarantees would help unlock participation.

The research also highlighted support for measures designed to reduce financial risk. Seven in 10 businesses said a government-backed Defence Guarantee Scheme aimed at reducing repayment risk would encourage them to enter defence supply chains, while 30 per cent said lenders would benefit from clearer visibility of future contract revenues.

The survey covered 82 businesses in the IT and telecoms sector as part of a wider poll of 537 business leaders across the UK. Respondents came from a range of sectors, company sizes and regions.

Growth hopes

The data suggests many technology and telecoms companies see defence work as part of a broader commercial opportunity tied to hiring, product development and local economic activity. It also shows that confidence in the sector is tempered by concern over the practical demands of winning and financing contracts.

For banks and policymakers, that leaves a clear set of issues to address if they want more smaller and mid-sized firms to join defence supply chains. Faster contract decisions, more predictable revenue streams and easier access to funding were recurring themes in the responses.

"Our research shows that UK technology and telecoms businesses see defence investment as far more than a national security priority. They see it as a catalyst for growth, innovation and job creation across the wider economy," said Stuart Foster, Head of Coverage at Barclays UK Corporate Bank.

"Firms are ready to invest, hire and develop new capabilities, particularly in areas such as cyber security, advanced technologies and R&D. The opportunity now is to remove the barriers that can slow progress. Simpler procurement processes, greater visibility of future demand and the right financing support can help more businesses participate, scale and contribute to strengthening the UK's defence capabilities."

Spyros Svoronos, Global Head of Industrials Investment Banking at Barclays, also pointed to the need for additional private funding alongside state support.

"Globally, the defence sector is at an inflection point, with a critical need to mobilise long-term private capital alongside traditional government funding to support growing security and resilience demands.

"Meeting these investment needs will require innovative capital solutions that can help scale the technologies and capabilities increasingly shaping the future of defence, including AI, cyber, advanced manufacturing and energy resilience," said Svoronos.