Blain’s Morning Porridge Feb 18^th, 2026 – Defence Spending, Resilience and Growth

“To save the village it was necessary to destroy it.”

The Russians have captured the FT, apparently! The headline that Gilts are about to crash because the Government will borrow more to increase defence spending is Pravda 101. The reality is Gilts should rally on increasing the strategic deterrence that defence spending will create.

Link to Podcast

If you wish for peace, be prepared for war. Strategic Deterrence is the most valuable form of infrastructure a nation can possess.

There is a worrying story in the FT this morning – “Gilt investors warn about “ruse” to fund higher UK defence spending.” It goes on to describe a potential backlash and “self-defeating” rise in borrowing costs if the Government tries to spend more on defence by issuing more debt. I had to check the byline – has the Pink-Un been bought by one of Putin’s oligarchs?

The story caught my interest for a number of reasons. I guess the journalists needed a story to counter UK Premier Sir Keir Starmer saying something sensible. Yesterday, he said he’s going to move faster to increase defence spending – wow, I’ve always believed Starmer means well, so it’s great to see him do something right. (But, as a chum said last night; give him a few months to fret about how to increase defence spending to 3% by 2029 without upsetting the bond market and Labour’s left-wing, and spending might even decline!)

The FT article cites a “leading investor” saying “I’m not the sure the bond market would like it.” Another said the market would be “sceptical about a carve-out”. Beats me how these guys are sitting in senior investment management roles – surely, they realise their investments in Gilts and the UK are likely to be made more secure by spending that discourages the Russians (or whomever else) attacking us? Perhaps not….  (I’ll come back to that below.)

A few weeks ago, one of my chums in the Labour Party let slip the Government’s 10-year Defence Investment Plan is being delayed in the hope of peace in Ukraine. The thinking is simple; if Trump can force a “ceasefire”, then the immediate need for rearmament diminishes, putting less pressure on Treasury to find money immediately for guns, and giving Starmer some funds to placate the left-wingers clamouring for more on the butter of welfare spending!

One of the most basic duties of any state is defence. It’s a complex two-part problem that goes beyond the guns or butter paradox:

• The first is paying for defence – which the UK is currently failing. Not because we don’t spend enough, but because we spend it badly!
• The second issue is making sure the nation is prepared to defend itself by being willing to fight. That’s more nuanced.

There is a reason no one invades Switzerland. Not only are mountains difficult terrain, but the nation is bound together through national service, trained and armed to the teeth, and has been determined for centuries to defend their independence. They are resilient, ready and willing.

Such determination is less apparent across other nations in Europe. Like Britain they are only now waking up to how weak and flabby their defensive stance has become following the collapse of the Warsaw Pact and the resulting “peace-dividend”. Years under the American umbrella and repeated defence spending cuts have weakened the bonds that once existed between the armed forces and populations and dimmed awareness of the need to be ready to fight.

Some nations have built national resilience – the Scandinavians have turned selective conscription into a reward system; the young people chosen to serve find themselves favoured for life in terms of job and career opportunities. The Poles are now spending more on defence to build Europe’s most effective army. Like Finland they have faced down the Bear before, and know they survive by being ready if they ever return – being a top marksman or logistics expert garners respect.

Britain has enormous pride in our Armed Forces. Who among us was not affected by the majestic soft-power on display as the troops paraded at the late-Queen’s funeral? Who is not moved when a Spitfire flies overhead, the distinctive sound of the Merlin engine quickening our pulse and raising our hopes.

Yet that pride can quickly dissipate if the links between armed forces and the nations weaken – which occurs when woke school’s close cadet forces, or local businesses shut because the Government hasn’t placed an order for new helicopters for decades. When young folk read about the terrible state of military accommodation, the unreliability of old tanks, the fact the new Ajax fighting vehicle is likely to cause deafness, or how old and decaying submarines are being sent out on ever lengthening patrols – the less likely they are to enlist.

I was lecturing my class at the Edinburgh Business School last week and after I described the need for European strategic deterrence to deter aggression, and the threats of conflict to economies, I asked the class how many would volunteer for service? There was not a flurry of hands shooting up in the air. I’ve been told the Royal Regiment of Scotland is struggling to meet its recruitment quotas – not so long ago the Highlanders were the elite spear-tip of the British Empire.

I imagine it was much the same in the 1930s when the Oxford Union voted not to fight for King and Country. The sad shires of the UK were depleted and exhausted after the first world war, and nobody wanted the horror of another conflagration.

The thing is…. you don’t get a vote on what the enemy is determined to do. Which is why strategic deterrence is critical.

In this new Trumpian world where strong nations may disregard the rule of law and do as they wish to weaker nations, the only way to build resilience is to be absolutely clear about the mission – building strong armed forces and resilience to create strategic deterrence against any and all that mean us harm. Convince the enemy they can’t win and convince your own population their nations are worth fighting for, and that they will win.

Today, Europe feels week and vulnerable, upset because the Yanks have left us in the lurch, and the Ivans are about to storm our capitals. Wake up and smell the coffee! Europe is a great place. We are inventive, we are innovative – and yes, we are plagued with bureaucracy, over-regulations and bad politics… but I’ve put a bet on that Farage will be out of Reform by year end.

Collectively Europe spends more on defence than the USA or China. If European defence spending was joined up, collegiate and cooperative there would be no more talk about “civilisational erasure”. The benefits of a strong European defence sector driving multipliers across the economy would be legion. Sadly, the reality today is France scrabbling to keep the UK out the European defence equation to benefit its own industry, while being at loggerheads with the Germans on a new fighter design, while the Brits won’t pay up to keep the new Tempest jet on the rails with Japan and Italy. These things can be fixed.

While it’s positive to hear Sir Keir Starmer promise to raise spending to 5% by 2035, we don’t really need weapons for the future, but for the now. To accelerate production lines to build war stocks. Apparently, the British Army bought 3 (yes 3) drones last year – get a grip.

Let’s go back to the story in the FT about the Gilts market rejecting increased borrowing to fund defence.

One of the great myths of the bond market is the power of Bond Vigilantes – that bond investors will band together to punish any attempt by governments (and corporates) to borrow “unwisely”. It’s true the bond market reacts to mistakes and unwelcome surprises – witness the Liz Truss debacle in 2022 when her unfunded spending plans and tax-cuts nearly triggered a collapse in Gilts when margin calls on LDI investments were triggered. That crisis took a special kind of stupidity to trigger – which Liz the Lettuce and sidekick the boy-blunder Kwasi Kwarteng had in abundance.

The thing about bond markets is fixed income investors care about 2 things only. They want repaid the principal they invest and interest on a timely basis (a credit issue), which means they also care about inflation undermining the value of interest and principal. Generally, bond markets respond well to spending plans likely to increase the probability they will be repaid, and that prices will be kept stable.

Nothing is as likely to generate an inflationary shock as much as a war – which becomes more likely the weaker a nation appears to be. Nothing would be more likely to make the repayment of bonds uncertain than a column of T-14 Armata Russian Tanks crashing through Whitehall.

Another factor is the multiplier effects defence spending could have not just in the UK but across Europe. I’m raising capital for Spitfire Strategic Capital, a new hybrid defence fund aiming to invest in weapons systems that will re-build swiftly rebuild strategic deterrence for the “middle” J-CAKE (Japan, Canada, Australasia, Korea and Europe) nations. There is a widely held perception among investors is that because Government is the monopoly buyer of all defence goods, anything that constrains defence spending – such as an imminent buyer strike in Gilts will see a crash in the price of all defence related stocks and bonds.

That’s a very simplistic view of defence spending. Much of the discussion on defence investment builds in the peace-dividends of avoiding war, and “dual-use” technologies which will see Defence Tech innovation cross over into the private sector. And that’s just one reason for investing in defence – a better future.

I really am out of time this morning… and have to go do my day job…

Bill Blain

Author of the Morning Porridge

CEO Windshift Capital

Advisor – Spitfire Strategic Capital