Who rules the waves tomorrow… America or Britain?

Before I dive into today’s essay, I want to preface it all with the fact that I wrote most of it yesterday.

I tell you this because, merely hours after I finished, President Trump stood in front of a crowd and American Navy ships to deliver a press conference with Secretary of War Pete Hegseth about a renaissance in American shipbuilding.

This also came alongside a gigantic $2.9 billion US Navy contract awarded to Anduril, along with $3.7 billion of Anduril’s own money to build out Arsenal-2, the largest new shipyard in the US since World War II.

The White House post said, “Restoring America’s Shipbuilding and Maritime Dominance,” alongside a Maritime Action Plan to “revive the US Maritime Industrial Base and reduce dependency on foreign shipping.”

And…

$77 billion for the Navy to build more submarines and $25 billion for the Coast Guard to acquire seven new icebreakers and 21 new cutters.

So, America is spending big on the Navy to “rule the waves.”

What is the UK doing?

This is the question I had even before these announcements from the White House and Anduril.

Meanwhile in the UK…

Haslar Bridge in Gosport… shut… late on Sunday night. So was Fort Road, Clayhall Road, and The Crescent.

There was a police cordon and a crowd of locals pressed up against it… residents living three streets away couldn’t get home.

At Fort Blockhouse, the old Royal Navy submarine base, 149 people who crossed illegally from France were being brought ashore. By the small hours of Monday, they were on coaches to Kent, with police escorts in front and behind.

Officers put dispersal and face-covering orders on the town, and 12 people were arrested.

Two days earlier, counter-terror police charged two Iranian men with preparing a chlorine bomb attack on Manchester’s Jewish community.

Both came in on small boats, one in 2020 and one in 2023. One has asylum and the other’s claim is still live.

And then there was the foiled plot now said to have been an order from Iran’s Revolutionary Guard Corps to unleash a drone attack on RAF Fairford.

MI5 tracked “more than 20 potentially lethal Iran-backed plots” in the year to last October. They also say Russia’s agents have moved on to arson and sabotage on British streets.

And don’t forget in March, Iran fired two ballistic missiles at Diego Garcia, the UK and US base about 3,800km away. One failed and the other was shot down.

Could the next one reach London?

Given that London is about 4,000km from Iran, yeah… it could.

Former Defence Secretary Ben Wallace said in April that Britain couldn’t stop one anyway, because the Type 45 destroyers that might have done it weren’t available.

So what comes next?

All of these things are preventable.

The government knows it.

The shadow government knows it.

The wannabe governments jockeying for a new election know it.

And if there’s some kind of ramshackle coalition next time around, they’ll know it too.

The only answer is to pull out the chequebook and spend heavily on the armed forces and the rearmament of Britain, particularly the Navy and border protection at sea.

The “big” debate is about spending 2.5% to 3% of GDP on defence.

But what if more is needed?

What if it actually comes?

What if it’s in line with the US (which is up around 4.5% and likely to pass 5% of GDP)?

£150 billion coming the way of British defence?

It’s by no means an unreasonable ask, and it’s very likely what the next election is going to come down to: Who’s really prepared to defend Britain?

Do YOU think Britain is spending enough on defence? Write to us at feedback@southbankresearch.com

Thirteen ships to guard an island

At the end of the Cold War, the Royal Navy had more than 50 destroyers and frigates. Today it has 13 on paper.

I say “on paper” because seven are ageing Type 23 frigates and six are Type 45 destroyers.

Early this year, both aircraft carriers were tied up in port, and none of the five Astute attack submarines were seaworthy.

The technology and art of war has moved on without Britain.

Videos said to be from a Russian military exercise show drones flying over targets, pouring molten thermite on top.

“Dragon drones,” they’re called.

Meanwhile, the Americans have just appointed Elon Musk and Palmer Luckey as co-directors of Project Meridian to work with the US Department of War on how to usher in the next big technological change to the US armed forces.

Considering Luckey’s Anduril makes autonomous air-strike vehicles, autonomous submarines (which Australia is paying it AU$1.7 billion for), mass-produced missiles, and AI-based augmented-reality tech for soldiers, amongst other high-tech things, it’s clear the US is preparing to spend big on re-arming.

And Musk’s SpaceX operates Starshield, its national-security satellite network.

In terms of cold hard cash too, the Pentagon wants $1.5 trillion just for next year. That’s 42% more than this year. And it wants $75 billion on drones alone.

Inside that sits $54.6 billion for a new autonomous warfare group.

(Ed note: and now over $6 billion towards restoring America’s shipbuilding and maritime dominance.)

America is a country re-arming itself first, with little care about anyone else.

So, is America still the friend that turns up when needed?

I wouldn’t bet the house on it.

President Trump spent much of this year hammering Britain for staying out of his war with Iran.

Both sides now want to spend

Defence is now the one thing both sides of the UK political benches compete to outbid each other on.

John Healey quit as defence secretary in June because he couldn’t get a date for 3% of GDP on defence by 2030. Upon taking the PM job, Andy Burnham made him Chancellor.

But now they’re pushing back that decision saying his first Budget on 28 October won’t set that 2030 date. And it might not come until next year.

However, recently in Birmingham, the Tories said they want defence spending to reach 3% of GDP by 2030, plus a £10 billion “Britannia Shield” of radar and interceptor missiles, paid for with welfare cuts.

It’s about as patriotic a military programme as you’ll see.

Kemi Badenoch says Labour will “pick social security over national security.” Defence Secretary Wes Streeting says the Tories owe Britain “an apology, not another lecture.”

Maybe we end up where the political pledges simply try to outbid each other on defence spending. And soon enough, it’s at 5% of GDP, with a Britannia Shield, new missile and autonomous systems, and an upgraded Navy that is a global force to be reckoned with.

Also, let’s not forget it was the Tories that gutted defence spending… but they do have a clear plan to spend up.

I expect that before any election, Labour will also ramp up the defence spending mission.

All that is additional spending I expect to come.

There’s still a hefty amount already targeted at the defence sector. And it could be a huge opportunity for the reindustrialisation of the UK and the one move that means Britain moves back towards ruling the waves.

A recent deal for £8.4 billion into the new Dreadnought nuclear submarines, another £135 million heading BAE’s way for maintenance and upgrades to the Navy’s torpedo weapons, and a deal for Kraken Technologies worth £12.3 million to deliver 20 autonomous surface vessels, indicates what this could start to look like.

There are ways for the UK to reignite growth and improve its future prospects.

And I believe that defence can be how British manufacturing gets a second life.

Twenty years of orders for steel, castings, electronics, and explosives is long-term, sustainable demand. And it all goes back into providing sovereign security against all forms of those who wish to bring harm to British waters and land.

There are, of course, ways to play a resurgence in British defence and security.

BAE Systems (LSE: BA) is the obvious one. Billions from the Dreadnought deal are already heading its way, and it’s a long-standing stalwart of British defence.

It also owns over a third of MBDA, the missile maker you’d expect a Britannia Shield to lean on.

Further down the chain, Chemring (LSE: CHG) is a lesser known name that makes decoys, explosives, and counter-drone tech for a modern battlefront.

Can the Royal Navy rule the waves again?

I don’t think there’s any other choice.

America is clearly going about it on its own timeline, with or without allies in tow. Britain cannot rely on someone else to provide the defence it so desperately needs to level up.

The only choice it has is to ramp up defence spending, and I believe it will, regardless of who’s in power.

More ships, missiles, battlefield technology, and counter-offensive defence systems. And Britannia Shield to add to the list in the coming years.

The threat to the UK is real, and defence is a necessary spend now, with an importance like never before.

And maybe there’s a real chance Britain can once again rule the waves.

Until next time,

Sam Volkering
Investment Director, Southbank Investment Research

PS Defence isn’t the only way Britain could take control of its future again. There’s another potentially enormous opportunity sitting much closer to home – one that could reshape British energy and industry in much the same way the North Sea once did. I’ve been looking at a little-known £1 British stock that I believe could be right at the heart of it. You can see the full story here.