BAE's growth warning after defence spending review

The company plans to work with the Ministry of Defence to address the implications of the changes but said it anticipated some modest impact on the performance of its UK business this year.

It also announced a reduction in its financial planning assumptions for the following years.

The government's decision to scrap the Harrier and the Nimrod will impact on its military air division, although naval operations have benefited from a commitment to continue with the construction of two aircraft carriers and the go-ahead for an order to build seven Astute class submarines.

BAE said in a trading statement: "The detail behind the changes will take some time to refine but the group welcomes the removal of a number of uncertainties which have been overhanging the business in recent months."

The company added that the cancellation of an offshore patrol vessel by the government of Trinidad and Tobago was also likely to impact on its performance, resulting in a charge of up to 150m in its accounts.

BAE, which has a big base in Brough, near Hull, has been steeling itself for the austerity drive with belt-tightening measures over the last year, including a net headcount reduction of around 7,000 staff and contractors in the year to date.

In the US, where BAE generates much of its business, the company said it continued to see a substantial number of opportunities, despite budgetary pressures leading to a drive for greater efficiencies in procurement.

Shares rose 2 per cent yesterday, a rise of 8.10p to 358.00p, following falls earlier in the week.

Investec Securities said it remained positive on the stock despite the update from BAE lacking in detail.

Analyst Andrew Gollan added: "After the defence and spending reviews, it would have been difficult for the largest UK defence manufacturer to present an overly positive story, however the group feels like it is in better shape than the lowly stock market rating indicates and as such we remain buyers."