United Kingdom Defence and Security Report Q3 2011

The outlook for the British defence industry is largely unchanged from previous quarters. Significant pressure is still set to be borne by the contractors as the government makes sizeable cuts in defence spending whilst the ongoing economic troubles limit defence investment by other major industrialised countries across Europe. British firms are, however, increasingly focused on generating business outside of Europe with the United States and India being two key markets.
With regards to domestic spending, the defence secretary, Liam Fox, has announced to the House of Commons that the government will be spending GBP3bn on preliminary work for new submarines. The spending is to be allocated for the purchase and production of a range of components with very long delivery times. According to Fox, the government has settled on the design for the new range of nuclear submarines.
Spending on submarines is a controversial issue for the Conservative-Liberal Democratic coalition, which led the Ministry of Defence to announce a new study into alternatives. The Liberal Democrats are more sceptical of the benefits of Britain making significant investment into a new submarine fleet at a time when public spending is being slashed across the board. Overall, the government said that spending on the renewal of the British nuclear deterrent is likely to cost between GBP20bn and GBP25bn, greatly above the original price tag of GBP11-14bn which had been estimated in 2006.
Private firm QinetiQ is set to begin paying dividends once again after a significant increase in profits for the 2010-11 British financial year. Underlying profits grew 21% to GBP145mn after strong performance at its global products unit. This, in turn, was driven by high demand in Afghanistan for the Q-NET vehicle survivability package which has been developed to limit casualties and damage caused by roadside bombs.
QinetiQ's profits come despite the defence cuts being implemented by its two largest customers, the US and UK militaries and comes after a year of restructuring. The firm cut operating costs by 10% over the past year as it adjusted to an increasingly unfriendly business environment. The firm also said that it has cut debt held by the firm from GBP457mn to GBP261mn.
The National Audit Office, a British watchdog for public spending, has issued a report warning that defence cuts could lead to armoured vehicle shortages in the British Army. The shortage is likely to continue until at least 2025, according to the report. Extra investment will be necessary to mitigate the problem which has been exacerbated by hundreds of millions of pounds of expenditure for equipment that has never been delivered to the armed forces.
The situation in Libya continues as the heads of the British military have warned that maintaining Libyan operations beyond the end of 2011 will pose significant challenges for the UK's armed forces. Reuters reports that the comments, which came at a parliamentary committee, came as the UK decided to increase its commitment to the Libyan campaign and introduce ground attack helicopters to aid rebel forces. The UK government has reaffirmed its commitment to maintaining the no-fly zone and its opinion that Qadhafi needs to be removed from power but has also continued to insist that ground forces would not be introduced.

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Executive Summary . 5
SWOT Analysis 7
Political SWOT Analysis 7
Economic SWOT Analysis . 7
Business Environment SWOT Analysis .. 8
Global Political Outlook . 9
Japan After The Quake 10
Global Hotspots: Libya, Iran, Afghanistan, Korea 11
Wild Cards To Watch 15
Europe Security Overview .. 17
Political Risk Analysis - The Strategic Outlook For The 2010s 17
Europe In A Global Context.. 17
Europe's Key Security Issues Over The Coming Decade 17
Western Intervention In Libya? Challenges Assessed 24
The West's Military Options .. 24
Conclusion . 26
Security Risk Ratings .. 27
Regional Security Ratings .. 27
Table: Europe Security Risk Ratings 27
Table: Europe State Terrorism Vulnerability To Terrorism Index .. 28
City Terrorism Rating .. 29
Table: BMI’s Western Europe City Terrorism Index 29
Political Overview 31
Domestic Security Overview . 36
Internal Threats . 36
Domestic Terrorism .. 36
Northern Ireland . 36
Table: Proscribed Irish Groups .. 36
Table: United Kingdom Insurgent Groups . 37
Latest Developments . 38
Timeline: Internal Threats . 39
External Threats 44
WMD Fears .. 47
Drug Trafficking . 47
International Terrorism .. 48
Table: Proscribed International Groups . 48
Latest Developments . 50
External Security: Recent Developments 51
Armed Forces And Government Spending . 56
Military Structure And Defence Industry 56
International Deployments . 59
Table: Principal Deployments Of UK Armed Forces 61
Weapons Of Mass Destruction . 62
Market Overview .. 64
Arms Trade Overview .. 65
Industry Trends And Developments .. 70
Table: Key Players In The UK’s Defence Sector 71
Timeline: UK Government Procurement. 80
Industry Forecast Scenario 87
Armed Forces .. 87
Table: UK Armed Forces Personnel, 2000-2008 (‘000 personnel, unless otherwise stated) . 87
Table: Manpower Available For Military Services, 2008-2015 (aged 16-49, unless otherwise stated) 88
Government Defence Expenditure . 88
Table: Defence Expenditure, 2008-2015 . 89
Defence Trade .. 91
Table: UK Defence Exports, 2008-2015 (US$mn) . 91
Table: UK Defence Imports, 2008-2015 (US$mn) . 91
Table: Defence Trade Balance, 2008-2015 (US$mn) .. 91
Key Risks To BMI’s Forecast Scenario 92
Macroeconomic Outlook . 92
Table: United Kingdom – Economic Activity, 2008-2015 .. 95
Company Profiles 96
BAE Systems . 96
GKN .101
QinetiQ ..103
Rolls-Royce ..106
Country Snapshot: UK Demographic Data 109
Section 1: Population ..109
Table: Demographic Indicators, 2005-2030 109
Table: Rural/Urban Breakdown, 2005-2030 ..110
Section 2: Education And Healthcare .110
Table: Education, 2002-2005 .110
Table: Vital Statistics, 2005-2030 .110
Section 3: Labour Market And Spending Power 111
Table: Employment Indicators, 2000-2005 ..111
Table: Consumer Expenditure, 2000-2011 (US$) .111
Table: Average Annual Wages, 2000-2012 ..112
Methodology 113
How We Generate Our Industry Forecasts ..113
Defence Industry 113
City Terrorism Rating .114
Table: Methodology .116
Sources ..117
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