LONDON, June 25 (Reuters) - British defence engineering company Babcock (BAB.L) , opens new tab upgraded its medium-term guidance on Wednesday, expecting to benefit from the UK's plan to spend more on defence and energy security to counter the rising geopolitical instability.

British Prime Minister Keir Starmer on Tuesday pledged to boost overall defence and security spending to 5% of economic output by 2035, citing volatility, as war rages in the Middle East and Ukraine, and amid tensions with China.

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Babcock, which maintains Britain's naval fleet, builds new warships and provides weapons systems and nuclear engineering services, said it was now expecting an underlying operating margin of at least 9% in the medium term, up from at least 8% previously.

"This is a new era for defence. There is increasing recognition of the need to invest in defence capability and energy security, both to safeguard populations and to drive economic growth," Babcock Chief Executive David Lockwood said in a statement.

For the current financial year, Babcock said it expected an underlying operating margin of 8%, up from the 7.5% it recorded for the 12 months to the end of March 2025. The company also announced a 200 million pound ($272.46 million) share buyback.

Babcock's shares have more than doubled in the year to date, boosted by Britain's initial commitment in February to spend more on defence, outperforming Britain's bluechip index which is up 8%.

($1 = 0.7341 pounds)

https://www.reuters.com/business/aerospace-defense/uks-babcock-upgrades-medium-term-forecast-defence-needs-rise-2025-06-25/