LONDON, March 20, 2026, 20:54 GMT
London-listed BAE Systems shares fell 2.5% to 2,250 pence on Friday, a steeper drop than the FTSE 100’s 1.4% decline as a broader selloff hit aerospace and defence names. The stock ended the day about 4.7% below a recent 52-week high near 2,360p reached earlier this week. 1
That matters now because BAE has been one of the clearest winners from investors’ rush into defence stocks since the Middle East conflict intensified. The shares jumped 6% on March 2 as oil surged and traders bet on stronger military demand, but Friday’s move showed how the same conflict is now feeding a wider market fear over inflation, oil and interest rates. 2
Britain added to the sector’s demand story this week. The government said it was working to step up support for Gulf allies under Iranian attack, ordering extra missiles from Thales UK and discussing faster deliveries of defence equipment and technology with suppliers including BAE, MBDA and Leonardo UK. 3
Company-specific news was smaller. BAE said on Thursday it would sell its remaining 6.9% stake in Kazakhstan’s Air Astana, worth about $31 million at the placing price, completing its exit from a holding the airline described as no longer core to BAE’s wider operations. 4
The broader story is still supportive. In February, Chief Executive Charles Woodburn called this a “new era” of defence spending after BAE posted a 12% rise in operating profit, a record 83.6 billion-pound order backlog and guidance for 2026 sales growth of 7% to 9%, with operating profit seen up 9% to 11%. 5
Analysts still see a longer runway. Citigroup strategist Beata Manthey wrote this week that European defence stocks are becoming a “strong structural addition” to portfolios rather than just a short-term shelter from geopolitical shocks, pointing to names such as Rheinmetall and Babcock in the sector’s surge. In London on Friday, Babcock fell 4.5%, a reminder that peers are moving with the same market swings. 6
The immediate pressure came from rates. The Bank of England kept borrowing costs at 3.75% on Thursday but warned inflation posed a bigger risk than slowing growth, pushing traders to price in roughly a 70% chance of a quarter-point rise in April and as many as three quarter-point increases by year-end. 7
But the rally has become more fragile. Europe’s defence index fell 3.2% on Friday, one of the region’s weakest groups, and Capital Economics’ Franziska Palmas said policymakers may already start hiking in April. For BAE, that leaves the shares pulled between two forces: stronger military demand on one side, and a tougher backdrop for equities on the other. 8
