MoD suppliers' shares fall after May questions defence spending

Shares of Melrose Industries, BAE Systems and other suppliers to the Ministry of Defence fell after the Prime Minister was reported to have questioned the department's spending plans.

At a tense meeting Theresa May told Gavin Williamson, the defence secretary, he needed to rethink what was needed by modern armed forces and to put more emphasis on cyber warfare, the Financial Times reported.

The prime minister appeared to question the UK’s position as a “tier one” military power, sending shockwaves through the MoD, the FT said. “People have their head in their hands,” an official told the paper.

Williamson has fought for more defence spending with his department facing a £20bn funding gap over the next decade. He has put a statement on his plans, scheduled for before July’s Nato summit, on hold.

Melrose shares were the third biggest losers in the FTSE 100 index, dropping 2.5% to 226.05p in late morning trading. Melrose bought GKN, which makes parts for planes and tanks bought by the MoD, in March. BAE, one of the MoD’s biggest suppliers, fell 0.7% to 629.10.

Outside the FTSE 100 shares of Interserve, named as a leading supplier to the MoD in 2014, fell 1.3% while support services company Babcock International and QinetiQ, the defence technology contractor, both dropped 1%. Serco, traditionally a major supplier to the MoD, fell 1.2% while shares of its outsourcing rival Capita, which won an MoD fire and rescue contract on 19 June, were flat. Engine maker Rolls-Royce shares rose 0.6%.