Defence spending in the crosshairs

Stay informed with free updates

Simply sign up to the Global Economy myFT Digest — delivered directly to your inbox.

Today’s top stories

• Chris Rokos’s hedge fund has racked up profits of more than $1bn so far this year after a bet on US interest rates paid off.

• The UK has imposed sanctions on six people who run the prison colony in Russia where opposition activist Alexei Navalny died last week.

• HSBC’s quarterly profit plunged 80 per cent thanks to a $3bn charge on the value of its stake in a Chinese bank and a further writedown on commercial real estate, highlighting how a slowdown in the country’s economy continues to hit international lenders. Bad domestic property debts are also hitting the biggest US banks.

For up-to-the-minute news updates, visit our live blog

Good evening.

They say defence is the best form of attack. Spending on defence is also a good method of boosting the companies that build the weaponry. That is the message behind the pitch (in an FT interview) of European Commission President Ursula von der Leyen to subsidise defence production and guarantee the purchase of weapons — as well as appointing a dedicated commissioner to oversee the new strategy.

Europe has good reason to spend more on defence, both to defend itself against Russian aggression and a potentially antagonistic future US president, if Donald Trump wins November’s election.

The fly in the ointment is that neither the defence industry nor EU member states like the idea of Brussels playing a more direct role in supporting the European arms industry.

Charles Woodburn, the head of Britain’s biggest defence company BAE Systems, highlighted the challenges the industry faces ramping up armament production in response to the war in Ukraine, saying large increases can take up to two years.

“There are limits to what you can do,” he told the FT as defence manufacturers across Europe race to increase production.

More spending would be welcomed by UK military chiefs, as it was confirmed today that a nuclear missile failed a second time in eight years — made worse by presence of First Sea Lord Admiral Sir Ben Key and defence secretary Grant Shapps both witnessing the embarrassing flop in January. The Ministry of Defence blamed an ‘anomaly’ during the firing of the Trident weapon.

Others have proven a willingness to spend. Australia has unveiled plans to build the biggest navy since the second world war to meet the threat from China. The planned upgrade follows a defence review that highlighted Beijing’s military expansion in the Pacific.

Berlin is taking a more muscular approach to national security, but concern is growing over how it will maintain the necessary spending.

It is not just von der Leyen, who is seeking a second term as Commission president, who wants to see more defence spending in Europe. Some would say about time.

Join FT correspondents and guests at 1pm UK time tomorrow for a subscriber-only webinar as the Ukraine war enters its third year, Moscow militarises the Russian economy, and Donald Trump runs for a second term in which he might terminate US support for Kyiv. Register here for your free pass.

Need to know: UK and Europe economy

The UK government had its biggest monthly surplus on record in January, traditionally a strong month for public finances as receipts come in from self-assessment tax returns. The surplus of £16.7bn comes as chancellor Jeremy Hunt assesses whether tax cuts are feasible in his March 6 Budget.

The Bank of England might start cutting rates before inflation falls to its 2 per cent target, governor Andrew Bailey said, pointing to “encouraging signs” that price pressures were easing.

Eurozone wage growth slowed for the first time in 18 months, increasing 4.5 per cent in the last quarter of 2023. Economists say however that the decline is unlikely to ease interest rate-setters’ concerns over high inflation. Commentator Chris Giles offers some solutions on how to fix Europe’s economy.

The EU’s Covid recovery fund that came into force in February 2021 was meant to jolt ailing economies out of lockdown-induced recession as well as provide investment for priorities such as climate change and digitalisation. Doubts however are creeping in as this Big Read explains.

A Russian liquefied natural gas project under US sanctions is close to exporting its first cargo thanks to Chinese help. Beijing has become the biggest importer of Russian LNG.

Need to know: global economy

FT analysis of trade data shows China is shipping more goods to the US via Mexico to get around steep US tariffs. Mexico last year overtook China as the biggest exporter of goods to the US, with truck shipments continuing to increase quickly.

Container shipping lines are struggling to cope with congested ports and shortages of ships as the Red Sea crisis enters a third month. Vessels are frequently turning up on the wrong days because of scheduling problems.

China’s state-owned enterprises have started setting up in-house reserve military units, a legacy of the Mao Zedong era, highlighting authorities’ increasing concern about social and political instability. The People’s Armed Forces departments conduct civil defence activities and contribute to military recruitment, promotion and training.

Canaries in the coal mine? Hawkish tones from central banks in Australia and New Zealand highlight the dangers of assuming rate cuts are a done deal, says markets columnist Katie Martin.

Vietnam is offering tax breaks and other perks to semiconductor companies as it takes on an increasingly crucial sectoral role against the backdrop of the China-US chip war.

Need to know: business

Apple is coming under fire from rivals Meta and Microsoft who say its plans to open up its mobile software to comply with a landmark EU law fail to go far enough. EU regulators say the tech giant allegedly favours its music streaming app over competitors.

Europe’s largest aluminium producer Norsk Hydro warned the construction sector could suffer from a demand slump similar to the pandemic because of high interest rates and rising building costs.

Heathrow airport has returned to profit for the first time since the pandemic and forecast that a record 81.4mn passengers will use the airport this year. The owners of the UK hub reported an adjusted pre-tax profit of £38mn for 2023, compared with a loss of £684mn a year earlier. 

There was more evidence of pushback on green policies when ExxonMobil warned that climate-related EU red tape might push it to invest elsewhere.

A reminder that inflation is not beaten came from Walmart as the world’s largest retailer said prices on some items had not fallen as much as anticipated. Chief executive Doug McMillon’s comments come a week after official data showed US inflation eased less than expected during January.

The BT Tower, a landmark building on the London skyline, has been sold in a £275mn deal to a US luxury hotel group. The Grade II-listed building, which was opened as the Post Office Tower in 1965 by then UK prime minister Harold Wilson, would be retained “as an iconic hotel, securing its place as a London landmark for the future”, said current owner telecoms group BT.

The World of Work

A new report has been released assessing the lessons of a four-day working week trial. Most of the businesses that participated have continued the flexible pattern but several flagged up the problem of maintaining productivity.

NYU professor of psychology Tessa West talks to the Working It podcast about why some of us become “people-pleasers” at work — and about the damage that can do to our careers.

Some good news

Fans of Miss Tiggy-Winkle have reason to celebrate. After years of decline, the British hedgehog population is growing again, according to a survey among readers of the BBC Gardeners’ World magazine. Let’s hope it’s not a one-off spike in numbers.