Defence spending in 2026

According to the International Institute for Strategic Studies, global defence spending reached approximately US$2.46 trillion in 2024. This reflects real-term growth of 7.4 per cent, compared to 6.5 per cent the previous year. On average, global defence budgets now account for 1.94 per cent of GDP, up from 1.8 per cent in 2023. Growth is particularly strong in Europe and Asia, as nations respond to regional threats and pressure to bolster military readiness and the trajectory seems to point in the direction of more increases over the medium term.

In the UK, for example, the recently published Strategic Defence Review outlines a 10-year roadmap to move the country towards ‘warfighting readiness’. Meanwhile, President Trump’s call for NATO countries to reach 5 per cent of GDP on defence has intensified the urgency for European nations to reduce reliance on US military support, driving strategic and fiscal re-assessments across Europe. Germany, for example, aims to increase its defence budget from €86 billion in 2025 to €152 billion by 2029, reaching NATO’s capability targets by 2035.

Increasing defence budgets continue to benefit traditional defence prime contractors, which have seen their share prices rise rapidly. However, there are also growing opportunities for small and medium-sized enterprises (SMEs) and non-traditional suppliers that are seeing dual use potential for technologies that have been developed in a civilian environment. NATO, for example, has launched a €1 billion Europe-focused innovation fund to support defence startups and SME growth among both defence specialist and dual-use companies. The European Union recently allocated €43.7 billion in low-cost loans for Poland’s defence acquisitions, with the Polish 2025 military budget expected to reach 4.7 per cent of GDP.

In this context, it is notable how agile, often tech-driven enterprises have experienced huge growth. To take just one of many examples, Exail Technologies, specialising in drones and marine systems, saw shares rise 420 per cent in 2025. These companies leverage advanced manufacturing, software-enabled processes and rapid prototyping to deliver cost-effective capabilities that complement traditional defence procurement.

However, despite this rapid growth, access to capital remains an issue in the sector. While changes in the geopolitical environment have seen some softening in the investment community’s reticence to engage in the sector, smaller defence suppliers still report difficulty accessing capital due to ethical concerns, including Environmental, Social, and Governance (ESG) restrictions. Many governments have identified this as a key issue to be addressed if their wider plans to strengthen their defence postures are to succeed. A UK task force, for instance, co-chaired by the UK’s Defence Secretary and Chancellor, has called for a comprehensive 10-year investment strategy, detailing government spending plans to improve visibility and attract private capital. There is also evidence that some SMEs are turning to fintech lenders, as traditional banks remain slow to embrace the financing of defence activities.

This brief overview forms part of our contribution to the publication of ‘Lexology Panoramic: Defence & Security Procurement’. You can access more on our Defence and Security Procurement Hub.

Our international Defence & Security team have written the global overview, the Australia, Czech Republic, Denmark, France, Germany, Hungary, Italy, Poland, Sweden, and UK chapters, and Mark Leach and Jono Ellis are contributing editors for the publication. All content on the hub is reproduced with permission from Law Business Research Ltd and was first published in Lexology Panoramic. For further information please visit: https://www.lexology.com/panoramic