The UK will drop to 10th in the ranking of Nato countries’ spending on defence in 2025, from fourth place in 2022, a new report has forecast.
Spending on the military by Britain as a proportion of GDP is expected to rise from its current level of 2.3 per cent to 2.4 per cent this coming year, although this is still short of Sir Keir Starmer’s target of 2.5 per cent.
But this rate will be outstripped in 2025 by a surge in funding on defence by Baltic and eastern European countries, the report, Predictions For the UK Economy 2025, by accounting giant PwC UK says.
While those nations closest to Russia have ramped up their military spending in the wake of the invasion of Ukraine in February 2022, the Conservatives said the report showed how the Government needed to urgently invest in the UK armed forces in case the situation in Europe and the rest of the world worsened.
The figures could also add pressure on Labour ahead of the arrival of Donald Trump in the White House in just over three weeks’ time.
The president-elect has demanded European nations spend more on defence to match the global threat and the investment from the United States.
Starmer and Defence Secretary John Healey are expected to set out in June 2025 the timetable for the UK to reach 2.5 per cent of GDP, following the publication of the strategic defence review in the spring.
In 2022, the UK ranked fourth out of Nato states in defence spending as a proportion of GDP, behind Greece, the US and Lithuania.
In 2023, as the war in Ukraine continued to rage, Estonia, Latvia and Poland all increased funding on their armed forces and the UK fell to 7th in the rankings.
As this year draws to a close, the UK is expected to be 8th and next year is forecast to be 9th behind Poland, which has almost doubled its commitment since 2022 from 2.2 per cent to 4.1 per cent, Estonia and the US, which are both spending 3.4 per cent, Latvia, Greece, Lithuania, Finland, North Macedonia and Denmark.
Nato has a benchmark for its members to spend 2 per cent of GDP, but many countries are not yet at that level.
Wind power boom as population ages
The over-65s will make up a fifth of the UK population for the first time in 2025, the PwC report says.
In 2000 16 per cent of the population were aged over 65, but by next year that will have risen to 20 per cent, or 14m people.
The figures are expected to put further pressure on ministers to set out plans for social care, with the rising proportion of older people likely to increase the strain on the NHS and care sector.
The report also forecasts that new registrations for hybrid and electric cars will reach 50 per cent, while UK oil production is set to reach its lowest mark since 1977 and UK wind power will generate electricity for the equivalent of 14.8 weeks, more than three months of the year, 15 per cent more than this year and 135 per cent higher than 2015.
Service exports are expected to break through the half a trillion pounds mark in 2025, equivalent to 20 per cent of GDP, the report also predicts.
Barret Kupelian, chief economist at PwC said: “This year, our predictions show that the UK will undergo subtle yet significant transformation in both its internal and external environment.
“Domestically, we see bright spots appearing. We expect to see continued strength in services trade next year, with services exports exceeding the half a trillion pound mark, and solid progress towards a greener economy, with crude oil production falling to its lowest level since 1977 and wind power generating enough electricity to power the UK for a quarter of the year.
“Meanwhile, our population is getting greyer and will require more propping up by the public purse, which will place even more pressure on already constrained public finances.”
Shadow defence secretary James Cartlidge said: “This underlines that whilst other Nato nations are getting on with increasing their defence budgets, Labour are using the defence review as an excuse to delay their supposedly ‘cast iron’ promise to reach 2.5 per cent of GDP.
“Keir Starmer needs to increase defence spending as a matter of urgency, not least to ensure we can rearm our military at the scale and pace demanded by the growing threats we face.”
Former defence minister Tobias Ellwood said: “Whilst Britain continues to meet its Nato commitments our slide down the rankings reflects the growing threat from Russia which Eastern European states are now responding to.
“Growing instability means all Nato states are now under pressure to increase defence spending – Britain moving this way will see us rise up the rankings again and be better prepared for what Putin does next.”
The forecast comes as former Nato commander Sir James Everard told The i Paper that higher spending targets were “sensible” given Trump’s concerns about Nato membership.
Everard said: “If you have an incoming Trump administration then I would have thought agreeing a higher defence spending target before he gets there is sensible isn’t it.”
An MoD spokesperson said: “This Government will always spend what’s required on defence to keep Britain safe.
“The Budget increased defence spending by £2.9 billion for next year and we are committed to setting out a path 2.5 per cent of GDP on defence in spring.
“The Government is totally committed to a Nato-first approach and the Alliance is the cornerstone of UK Defence.”
