UK-EU defence pact: A strategic lifeline for British industry, or another false dawn?

20 May 2025, 13:58

By Tom Saunderson

Formalising defence and security co-operation between the UK and EU could bring significant economic benefits for Britain’s defence, space and aerospace sectors if it comes off.

Both sides will coordinate on sanctions, share intelligence and collaborate on space-related security.

Crucially, the agreement “paves the way” for UK-based defence firms to access Security Action for Europe (SAFE), a €150 billion fund providing loans to member states for strategic defence projects.

This is a significant political and economic signal, which follows a less formalised consensus between the UK and EU regarding the importance of rearmament in the face of Russian aggression in recent years.

While access to SAFE isn’t yet guaranteed, the framework sets the stage for renewed participation and, if agreed, has major implications for both businesses and investors.

Market access equals long-term growth

SAFE and its sister initiatives under the European Defence Fund (EDF) could unlock long-term, cross-border R&D and procurement opportunities for UK firms, from primes to specialist SMEs.

Currently, EU procurement rules cap non-EU suppliers – including the UK – at 35% of a jointly funded defence product, with this quota split with the US and others. Under a new UK-EU framework, this cap could be lifted, allowing up to 100% British supply into EU-funded programmes.

When combined with the recently announced reform of the UK’s own defence procurement system, this is a particularly significant opportunity for SMEs, which have historically found it very difficult to access fragmented UK and EU trade and procurement markets. However, the key to long-term growth will be in a procurement model that sustains the supply chain beyond immediate need.

Re-entry into collaborative development

For UK defence, space and aerospace businesses, this deal offers a potential path back into critical EU consortia, helping shape early-stage innovation and capability development. It could be especially valuable in areas like autonomous systems, next-gen aerospace and dual-use technologies.

Supply chain resilience and strategic positioning

SAFE is focused on priority areas where the UK already leads – cyber security, secure communications, drones, AI, electronic warfare and space security. With capacity shortfalls across Europe and the EU focused on reducing reliance on non-European suppliers, UK firms are well-placed to be preferred suppliers.

Strategic alignment but with trade-offs

While this agreement offers a route into shaping European defence priorities, it may also require conformity with EU rules, and limited formal input and reduced autonomy compared to pre-Brexit arrangements. The UK’s role will likely be collaborative, not directive. Navigating this balance- access versus autonomy will be critical for both government and industry.

Detail is still missing

Before we get carried away, a cautionary note – this is far from a signed agreement. It’s the start of structured discussions. Regulatory conditions, eligibility thresholds and compliance demands could significantly shape, or limit, UK involvement.

Economic potential
This is a pivotal signal of renewed UK-EU alignment, with the combined initiatives adding an estimated £9bn to the UK economy by 2040. While the details are still to come, the direction is clear and, if secured, this could unlock major commercial and investment opportunities across the UK’s aerospace, space and defence sectors.

We’re on the runway but not cleared for take-off.

Tom Saunderson is a corporate partner at UK and Ireland law firm Browne Jacobson

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