UK shifts focus to defence capacity and AI strategy

The Farnborough Airshow delivered a strong signal for the aerospace and defence sectors, with aircraft and engine agreements worth an estimated £62.7bn and £10.8bn potentially flowing to British industry. The government added a £708m extension to BAE Systems’ Future Combat Air System programme, supporting around 4,500 workers and approximately 600 British companies and academic institutions, while Lockheed Martin UK secured a £20m hypersonic target contract.

The investment push is colliding with a tighter labour market. Skills England and the Ministry of Defence estimate employment in 14 priority occupations will increase by 53,000 between 2025 and 2035, while 29,000 workers may need replacing. A new Defence Universities Alliance links 35 institutions with defence bodies as part of a £182m skills package.

Public finance is becoming a larger force in scale-up funding. The British Business Bank has been reported as the UK’s most active venture investor, and its Sovereign AI vehicle backed CuspAI, which raised $450m at a $2.6bn valuation. Andy Burnham’s government also abolished DSIT and moved AI oversight closer to the Cabinet Office, drawing criticism from tech groups and former advisers. London’s AI sector continues to expand, with 1,531 companies employing at least 50 people and 751,162 sq ft of AI-related office take-up in H1 2026.