BAE Systems has upgraded its financial guidance following a string of contract wins, but expectations for additional government defence spending may have dimmed after Prime Minister Andy Burnham declined to commit to increasing expenditure.

The aerospace and defence contractor, Britain's largest defence company and a cornerstone of the UK's industrial base, reported first-half profit exceeding £1bn, with sales also rising year on year. The company raised its forecasts for both underlying earnings per share and cash flow, and indicated that revenue could come in slightly above previous expectations.

First-half revenue reached £14.6bn, up from £13.6bn in the same period a year earlier.

Chief executive Charles Woodburn said he anticipated governments continuing to bolster defence budgets, a trend already underway as most European nations have unveiled significant increases in military spending as a proportion of GDP. The pushes come against the backdrop of NATO's longstanding benchmark requiring members to allocate at least two per cent of GDP to defence, a threshold the UK currently meets.

However, the Prime Minister stated that health, social care, and youth employment must take precedence before any pledge to allocate three per cent of GDP to defence.

Speaking at a press conference on Wednesday, Burnham was questioned about his commitment to defence spending — an increase that would require at least £9bn in additional annual funding.

He said his immediate priorities are young people not in education, employment, or training (Neets), along with NHS funding, social care, and enhanced support for children facing mental health challenges, all of which would take precedence over new military spending commitments.

“We've got to start investing in success, and helping people succeed rather than paying for failure,” he said. “If we change those things, then we will open up the way of meeting our commitments on defence.”

Burnham stopped short of offering a direct commitment, saying the decision belongs to “the parliament after this one,” referring to 2029.

Burnham Visits BAE Systems Factory

The Prime Minister announced he would visit a BAE Systems facility in Barrow, in the North of England, to highlight an £8.4bn investment in the UK's next nuclear deterrent submarine programme, known as Dreadnought. The Dreadnought-class vessels are designed to replace the current Vanguard-class fleet, which has maintained Britain's continuous at-sea nuclear deterrent since the 1990s.

Ahead of the visit, he described national security as the “first responsibility of any government” and commended a new apprenticeship scheme introduced under the programme, but remained tight-lipped on defence spending levels.

The situation could prove politically delicate for Burnham following his appointment of John Healey as Chancellor. Healey is not expected to accompany the Prime Minister on the Barrow visit, according to people familiar with the matter. The former defence secretary previously resigned from Sir Keir Starmer's government over the then-Prime Minister's refusal to outline a path toward raising defence spending to three per cent of GDP by 2030.

Shadow Defence Secretary James Cartlidge described Burnham's refusal to commit to the three per cent target as “deeply alarming.”

“The threats we face are growing every day, yet the PM is treading water,” he said.

“We know what Healey thinks, but we still don't know what the PM's view is. This isn't good enough.”

Separately, the government may face challenges in overseeing the Ministry of Defence's budget. A document seen by City AM reveals that the Ministry of Defence acknowledged facing a “particularly high risk of fraud in its procurement.”

The report identifies procurement as the department's most significant fraud risk area, with the MoD set to spend up to £70bn on contracts over the next few years.

Correspondence between officials and a parliamentary committee also indicated the MoD is exposed to fraud risks involving personal misconduct, theft of assets, and exploitation of sensitive information.

Over the past four years, the department has recovered only 48p for every £1 spent on tackling fraud and economic crime.