TheChek News Flow

Confusion over power vs electricity, energy input vs output and net zero vs zero emission does not help the already complex climate conversation

Reading recent media coverage about climate action means lurching between apparent victory and defeat. It’s triumph one day as another decarbonisation milestone is heralded. Then disaster the next as countries and companies alike walk back on climate commitments or veer perilously close to denying climate change altogether.

We can expect more such whiplash: Hong Kong Green Week takes place next month, the UN General Assembly and Climate Week NYC are also due to begin in September, followed by the Cop30 climate change summit in Brazil in November.

If the year so far is any guide, discourse at these events will be laced with three common misunderstandings (promoted deliberately or otherwise). They are simple and beguiling misconceptions that impede our understanding as an increasingly noisy debate rages.

The first is the tendency to conflate electricity with energy. The second: confusing energy input with energy output. And the third? Mistaking net-zero emissions for zero emissions.

This isn’t just splitting semantic hairs. In the race to decarbonise, headlines like “Renewables now supply 50 per cent of China’s power” frequently trumpet dramatic progress. They sound transformative – until you realise “power” usually means electricity, not total energy.

And therein lies a problem.

Electricity accounts for only about 20 per cent of final global energy use. The rest – transport fuels, industrial and residential heating – is still overwhelmingly fossil-based. Yet the word power blurs this distinction. Phrases like “solar power”, “power plants” and “clean power” reinforce the illusion that electricity is synonymous with energy.

This has consequences. Policymakers and the public often overestimate how far we’ve come. Electrifying cars, homes and factories is vital but not the whole picture. Aviation, shipping, steel and cement remain stubbornly carbon-intensive sectors.

By focusing on electricity, we highlight the sectors where progress is easiest and downplay the harder, messier parts of the energy system. The word “power” becomes a rhetorical short cut, masking the complexity of full decarbonisation. We should celebrate the strides that renewables have made but remember not to conflate electricity with total energy demand.

We also frequently confuse energy input with energy output. In other words, energy supply is not the same as the energy we use.

Commentator Michael Liebreich calls this the “primary energy demand fallacy”. It arises from a key metric the International Energy Agency (IEA) calls “primary energy demand” – which doesn’t represent the energy we use. It’s more like supply.

This is important because fossil fuels are significantly less efficient than clean energy technologies in converting primary energy inputs like oil or coal into energy outputs – like light from a bulb, motion from a car or heat from a radiator.

This efficiency gap is huge. Many coal-fired power stations, for example, convert no more than 35 per cent of their fuel into usable power like electricity, with the rest mostly lost to heat. Oil and gas are not much better. An electric motor, by contrast, converts around 90 per cent of its electricity into motion.

By implying clean energy needs to replace fossil fuels on a one-to-one basis, proponents of the primary energy demand fallacy ignore the efficiency gains of electrification, perpetuate the idea that clean energy can’t meet global energy needs and make the transition look more challenging than it is.

So the next time you read a climate sceptic decrying renewables’ small share of the world’s energy demand, remember that around two-thirds of fossil fuels’ share of this “demand” is waste heat. The transition is difficult, but not nearly as difficult as some would have you believe.

And it should be obvious, but net zero doesn’t mean zero emissions. It means all emissions are balanced by equivalent carbon removals.

It’s a term that’s come in for a lot of flak. A long-standing criticism is that the “net” in net zero gives countries and companies a licence to soft-pedal decarbonisation: enabling them to continue emitting on the basis they can cancel it out later. In other words: burn now, pay later. It leads to an overdependence on carbon offsets, which sparks questions about the integrity of carbon credits and their susceptibility to double counting.

Yet tightening regulatory compliance, increased scrutiny of voluntary carbon markets, and recent progress with international carbon markets under Article 6 of the Paris Agreement have gone some way towards addressing these concerns.

A more challenging, yet often overlooked, problem with net zero is with “zero”.

Focusing on “zero” tends to have unhelpful implications. “Zero” is psychologically satisfying: it feels clear, clean and complete. But it also encourages an overly binary framing of the climate problem, i.e. renewables = good, while fossil fuels = bad. This gets in the way of a reasoned discussion of the transition.

A bias towards “zero” also tends to promote techno-centricity, emphasising electrification, hydrogen and carbon capture, often to the detriment of powerful nature-based solutions like reforestation, wetland restoration and regenerative agriculture.

Net zero is an essential idea in understanding the pros and cons of climate action and solutions. But absolutism, whether from a “net” or “zero” angle, gets in the way of that understanding.

Climate is hard, complicated and contentious enough already. Puncturing sweeping yet erroneous generalisations and recognising the nuance of the debate on either side of the argument are essential to making continued progress. Keeping these three common misconceptions in mind can go a long way to staying grounded in the process.

Multipolar arms race takes ballistic missile threat to new levels

Cold War-era bilateral arms control treaties simply won’t work as more states emerge with deterrent capabilities, complicating calculations

War is just one press of a button away, and the likelihood of that happening – even if accidental – is not insignificant. The advancement of ballistic missile capabilities has opened up new battle spaces. Just as during the Cold War, today’s adversaries can hold each other’s populations hostage under the threat of nuclear war.

As we mark 80 years since the second world war ended, it is becoming easier to fathom our world at war again. However, while it may be true the “long peace” was more an exception than the norm, the current trajectory of returning to a historical norm of perpetual conflict can be reversed.

The logic of war remains the same but the nature of war – and the scale of suffering we can inflict – has radically changed.

The ballistic missile threat is very much alive. Russia recently lifted a self-imposed ban on the deployment of nuclear-capable intermediate-range missiles. Washington is developing missile delivery systems in the Asia-Pacific through the Aukus pact with Australia and Britain. China tested its DF-31AG intercontinental ballistic missile over the Pacific Ocean in September last year. North and South Korea continue to test-launch ballistic missiles, with Seoul firing its first submarine-launched missile in 2021.

These do not bode well for the global strategic environment.

An absence of direct confrontation between the great powers does not mean we are at peace. Since the atomic bomb and the adoption of ballistic missiles as a means of delivering destruction, the nine nuclear-weapon states have relied on instilling fear to avoid confrontation. We call this “deterrence” and we believe it will hold. But we forget that it only takes one mistake or misperception of intentions for deterrence to fail.

During the Cold War, intermediate and short-range missiles destabilised the US-Soviet strategic relationship, easily risking escalation. The Soviet Union feared a “decapitation strike” on Moscow from the West, especially after Nato’s deployment of intermediate-range Pershing II missiles in western Europe.

Coupled with president Ronald Reagan’s Strategic Defence Initiative – also known as the “Star Wars” programme, which touted the ability to intercept any missile threats – the Soviets increasingly realised their nuclear deterrent could be rendered ineffective. Both sides eventually recognised that such a relationship was unsustainable.

In 1987, the United States and the Soviet Union signed the Intermediate-Range Nuclear Forces (INF) Treaty, a breakthrough after close calls including the 1962 Cuban missile crisis and in 1983 during the Euromissiles Crisis. But in 2018, President Donald Trump announced he would withdraw the US from the treaty, citing Russian noncompliance after its development and deployment of the SSC-8 intermediate-range cruise missile.

Following Moscow’s invasion of Ukraine and the breakdown of US-Russia relations, President Vladimir Putin has also abandoned the treaty. The US is unlikely to ever come to a similar arrangement again with Moscow – or even Beijing.

Today’s multipolar world order creates challenges for bilateral arms control arrangements. Any limitations imposed between the US and Russia would be subject to Washington’s considerations of China’s missile deployments. While this logically supposes the three powers could formulate a trilateral arrangement, it would subsequently be subject to Beijing’s strategic considerations of India’s missile developments.

Germany's Merz expects Ukraine war to last a long time

BERLIN, Aug 31 (Reuters) - German Chancellor Friedrich Merz said on Sunday he was braced for the Ukraine war to last a long time given that wars usually end in military defeat or economic exhaustion, scenarios he does not see on the horizon for either Kyiv or Moscow.

Merz's comments come a day before the expiry of a deadline set by U.S. President Donald Trump for a meeting between the presidents of Russia and Ukraine with a view to paving the way for peace talks. Trump has threatened "consequences" if the meeting does not take place.

Merz and French President Emmanuel Macron have said the fault lies with Russian President Vladimir Putin, and have urged the U.S. to impose tougher sanctions on Moscow.

"I am preparing myself inwardly for this war to last a long time," Merz said in an interview with public broadcaster ZDF.

Efforts are being made through intensive diplomatic initiatives to end the war as quickly as possible, but this cannot be "at the price of Ukraine's capitulation" because Russia would then simply target another country, he said.

"And then the day after tomorrow it will be us," Merz added. "That is not an option."

He refused to be drawn in the interview on the issue of a possible deployment of German troops to Ukraine as part of security guarantees in the event of a peace deal.

Britain and France are spearheading a proposal for a "reassurance force" to deter potential future Russian aggression within that context, but the prospect of Germany joining them has sparked unease in a country scarred by its Nazi past.

The Kremlin said on Sunday that European powers were hindering Trump's peace efforts, and that Russia would continue its operation in Ukraine until Moscow saw real signs that Kyiv was ready for peace.

Will the next US jobs report make a Fed rate cut more likely?

Investors are squarely focused on Friday’s US non-farm payrolls after a troubling set of July jobs numbers.

The data, out in early August, showed that only 73,000 jobs were added, while the previous two months’ numbers were revised down by 258,000, bringing monthly average payroll growth between May and July to just over 35,000.

The concern over the labour market that followed prompted rate markets to start pricing in a greater chance of an interest rate cut as soon as September. It also prompted President Donald Trump to fire Erika McEntarfer, head of the Bureau of Labor Statistics — a controversial move that panicked some investors.

Although Fed chair Jay Powell hinted that the central bank would go ahead with a September cut in his Jackson Hole speech, investors understand that this will be conditional on the August jobs report. Should it come in above expectations and show that the labour market is not under immediate pressure, other signs in the economy suggest that the Fed could stay put. Inflation is lingering and growth is still reasonably strong, as shown by last Thursday’s upward revision to second-quarter GDP.

Economists polled by Reuters expect 70,000 jobs to have been added in August. A downward miss, and a potentially large downwards revision, could firm up the market’s current interest rate expectations, or potentially push traders to price an even bigger cut in September. But stronger numbers may put a damper on markets’ enthusiasm — and frustrate the president’s unorthodox push for a cut. Aiden Reiter

Will August inflation quash lingering hopes of another ECB cut?

Since the European Central Bank’s decision in July to keep interest rates unchanged — ending a series of quarter-point cuts that halved its policy rate to 2 per cent — traders have dialled back their expectations of another cut before the end of the year.

August inflation data, to be released on Tuesday, will be the “last chance saloon for ECB doves”, said advisory firm Pantheon Macroeconomics, arguing that a softer than expected print could bolster the case for another cut.

Financial markets are pricing in a less than 3 per cent probability of a quarter percentage point reduction at the ECB’s next meeting on September 11. Any further cuts at all this year are seen as unlikely.

Economists polled by Reuters expect August inflation to come in bang in line with the ECB’s medium-term 2 per cent a year target for the third month in a row, while economic activity on balance has been slightly better than expected.

In Germany, the Eurozone’s largest economy, annual inflation rose to 2.1 per cent in August, up from 1.8 per cent in July and just above the 2 per cent expected by economists.

Analysts at Goldman Sachs said on Thursday that inflation expectations in the euro area “appear well-anchored” as a post-pandemic surge in prices has petered out. “This is consistent with our expectation that inflation will converge back to 2 per cent,” they said.

Will Swiss inflation prompt bets on negative rates?

Investors will be watching Swiss inflation data for clues about whether policymakers will be forced to resort to negative interest rates to support the economy, as Switzerland grapples with the impact of steep US tariffs.

Economists polled by Reuters expect 0.2 per cent year on year inflation in August, which would be unchanged from July’s figure.

Switzerland has faced stubbornly low inflation this year, prompting the central bank to cut its policy rate to zero in June. Markets are pricing in a 90 per cent chance that policymakers will hold rates steady in September — although a minority of traders are betting on a fall into negative rates. 

Inflation briefly turned negative in May, with a reading of minus 0.1 per cent year on year.

A 39 per cent “reciprocal” tariff on its exports to the US came into effect in August, while economic growth has slowed sharply. At the same time, the Swiss franc has surged this year, as investors have sought haven currencies amid global market volatility, putting further downward pressure on Swiss inflation.

“There is a risk that Swiss inflation turns out below consensus estimates,” said Tomasz Wieladek, chief European macro strategist at T Rowe Price. 

He added that the Swiss purchasing managers’ index, a closely watched indicator of economic activity, showed tumbling sentiment in the services sector after the latest US tariff announcement.

“If this sentiment is reflected in actual demand, core inflation may weaken again,” Wieladek said. If so, the central bank could be forced to consider a return to the world of negative rates, he added

Targeting expensive houses and non-residential land would leave the vast majority of homeowners and farmers untouched

As the UK government faces fiscal challenges, it is considering options to raise tax revenue that were previously off the table.

Proposals such as a 2 per cent tax on wealth over £10mn have made headlines. However, many expensive assets — such as paintings and yachts — are mobile, unlike fixed property and land.

Instead, the government should replace the top two bands of council tax, covering around 1.1mn properties in England and Wales, with an annual wealth tax of 0.5 per cent as well as a 1 per cent tax on all agricultural and unoccupied land valued above £40,000 per hectare. For non-UK taxpayers and owners of second homes, the rate would be 1 per cent, lower than typical US property tax rates. Crucially, the great majority of homeowners and farmers would be untouched by these reforms.

UK council tax is based on 1991 property valuations, grouped into eight price bands and paid by tenants. It is probably the world’s most unfair property tax: the poorest pay the highest tax as a percentage of property value and the richest the least. It is also unfair regionally. The tax revenue raised by a home in the top band is around £4,500 in Nottingham but just £1,060 in Westminster.

Governments tend to balk at wholesale reforms, even when winners outnumber losers. This is why stamp duty land tax, at high and progressive rates, affecting only a small number of property owners in a given year, has endured, despite its consequences for social mobility and economic efficiency. Losers, especially the wealthy, shout louder than winners. The outdated nature of property valuations creates additional problems. But politicians are fearful of the upheaval created by revaluation. By confining revaluation and reform to the top two council tax bands, the costs and political pushback would be limited. To protect cash-poor pensioners, payment deferral should be permitted until the property was sold, with a 0.6 per cent tax rate instead of 0.5 per cent for cash payers. For every year deferred, the tax authority’s equity stake in the property would rise by 0.6 per cent.

Estimates suggest such a tax could increase revenue from the two top council tax bands by as much as £9bn. Only revenue in excess of what council tax would have raised would accrue to the central government, ensuring that no local authority loses out. Tax collection, based on owners rather than occupiers, would be run by HMRC, not local authorities.

A fall in top-end property prices in London and south-east England would be likely to follow as the holding cost of ownership rises. However, a reduction in the highest stamp duty rates for expensive property, to a top rate of 5 per cent, would stabilise the market. (Those who have recently paid high rates of stamp duty will need reductions in future property tax liabilities.)

Several benefits would follow. Fewer luxury homes bought by foreign investors to park money will sit empty. With lower deposits needed to access a mortgage and lower stamp duty rates, housing affordability will improve for high earners — boosting future employment and income tax revenue. A shift in developer incentives away from luxury housing and lower local land prices in high-value areas should improve housing affordability more broadly.

A tax on current market values of non-residential land in expensive locations would also have widespread benefits. It would lower farmland prices potentially relevant for development, especially for projected new towns. Introducing holding costs on undeveloped land would facilitate land value capture — a crucial tool in supporting the government’s affordable housing plans — so that surrounding communities and society more broadly benefit from gains rather than letting existing landowners reap so much of the profits.

Many voters, as well as Labour backbenchers, feel that the new government has neglected issues of fairness. The proposed reform asserts fiscal probity while addressing this concern.

Wealthy Americans pour record sums into private credit funds

Individual investors among the biggest sources of growth as institutional demand slows

Private credit funds are drawing in record sums of capital from everyday investors, offsetting a slowdown from large institutions as wealthy individuals are lured in by the higher returns on offer.

Affluent individual investors in the US have pumped $48bn into private credit funds in the first half of this year, already surpassing the entire haul in 2023 and on pace to eclipse the high-water mark of $83.4bn set in 2024, according to investment bank RA Stanger.

European investors are also diving in, with assets in so-called evergreen private debt funds across the continent more than doubling from a year ago to €24bn at the end of June, according to consulting firm Novantigo.

The inflows underscore the growing importance major private investment groups are now placing on individuals, with analysts at rating agency Moody’s calling it “one of the biggest new growth frontiers in the industry”.

It also represents just the tip of the spear for groups that had lobbied heavily to open the broader US retirement market up to private equity and credit, which culminated with US President Donald Trump’s August executive order paving the way for their broader inclusion in 401k plans.

“The growth is coming from a very underpenetrated market,” said Brad Marshall, Blackstone’s head of private credit. “Private markets offer investors a premium [over] what they can get in public markets.”

Fundraising in traditional drawdown private credit funds has slowed alongside a broader downturn for the leveraged buyout industry, which has struggled to return capital to investors in the years since the Covid-19 pandemic and has, in turn, suffered weaker inflows.

Data from Preqin shows that private credit vehicles pitched to large investors, including endowments and pensions, have raised successively less every year since hitting a peak in 2021.

New contributions from wealthy individuals, by contrast, have accelerated. They have been spread across a handful of different vehicles, complicating comparisons between firms. The Stanger data focuses on non-traded business development companies as well as interval funds, which offer redemptions at set periods. Collectively, they are known as evergreen funds, because they do not wind down at a specific date in the future. Investors can also continuously put more money in.

Flows into the vehicles were stable during market swings earlier this year, after Trump launched his tariff blitz against most of the US’s largest trading partners. That has bolstered confidence that demand from individuals is durable, and that smaller investors will not race to redeem at the first sign of turbulence.

“It reinforced what we’d want to see, people not running from alternatives but looking at alternatives and saying there was stability there,” said John Sweeney, who runs wealth solutions at Brookfield.

Blackstone has long dominated the market, although it is facing intensifying competition from rivals including Apollo Global Management, Blue Owl, Ares Management and BlackRock’s HPS Investment Partners.

Blackstone’s private credit fund, known as Bcred, has drawn in $6.5bn so far this year and $11.7bn over the past 12 months. On the average day markets are open, individual investors are placing more than $50mn of orders for the fund, the Stanger data shows, at the top of the pack.

Those inflows, supercharged by leverage, have pushed the size of Bcred up more than 50 per cent in the past two years to $73bn in June.

Others are catching up. Apollo’s offering — Apollo Debt Solutions — has raised $6.4bn over the past year, while two large funds from Blue Owl have taken in roughly $7bn. Ares’s main offering for wealthy individuals, the Ares Strategic Income Fund, has raised $5bn.

And a smaller investment management firm, Cliffwater, has won massive share among independent wealth managers. Its fund has gone toe-to-toe with Blackstone, raising nearly $11bn over the past year, and now stands at more than $30bn.

Blackstone was earlier than many of its rivals as it charged into wealth management offices, pitching major players such as Morgan Stanley and UBS, as well as the independent advisers that direct how millions of Americans save for retirement.

That resulted in near total market share for its product among other BDCs that are not publicly traded, sitting just below 90 per cent in 2021, according to Stanger. While it has remained the top draw for wealth managers, that figure has fallen to 28 per cent among similar vehicles amid a wave of new fund launches.

Raj Dhanda, global head of wealth management at Ares, said wealth managers had been keen to expand the number of funds they could pitch clients given that Blackstone’s “share of the market was probably uncomfortably high”.

But he noted it was still a small set of asset managers drawing in investors. “After a small group of the leading global alternative managers, the flows fall off considerably,” he said.

European private markets are also seeing a surge of interest from individual investors, sparking a wave of new fund launches across the continent. Novantigo counts 37 private credit evergreen funds in the market, up from just six in 2022. Ares and Blackstone have both been fundraising, and HPS is in the midst of launching its own vehicle, according to a filing.

Private credit itself has moved into the mainstream after post-crisis regulations limited lending by the traditional banking system. Major asset managers stepped into that void, lending directly to businesses and consumers.

The rapid pace of inflows has caused consternation from some inside the industry, even as their management fees swell. The inflows have materialised alongside a broad market rally, which has led to stiff competition among investors in private and bank syndicated loans. That has weighed on returns, as private lenders compete aggressively to win deals.

“It’s a tricky investment environment driven by the imbalance between supply and demand of capital,” Joshua Easterly, a top executive at Sixth Street, said on an earnings call this summer.

“Competition is elevated, and it’s increasingly difficult to generate outsized returns.”

Kemi Badenoch says UK move away from fossil fuel extraction is an ‘act of economic disarmament’

Kemi Badenoch has pledged to extract every last molecule of oil and gas from the UK North Sea, as the Conservative party seeks to distance itself from its previous support for net zero and to attack Labour for rising energy bills.

The Conservative party leader said the North Sea Transition Authority regulator would be rebranded to the North Sea Authority under a Tory government, with environmental regulations slashed in favour of a single mandate to “maximise the extraction of our oil and gas”.

Badenoch said the UK’s move away from oil and gas extraction was a “unilateral act of economic disarmament”, adding it was “absurd” the country was “leaving vital resources untapped whilst neighbours like Norway extract them from the same seabed”.

“A future Conservative government will scrap all mandates for the North Sea beyond maximising extraction,” Badenoch said. “It is time that common sense, economic growth and our national interest came first . . . We are going to get all our oil and gas out of the North Sea.”

Badenoch’s statement, which comes ahead of a speech at a major oil and gas conference in Aberdeen on Tuesday, marks a significant departure from the previous Conservative government that hosted UN Climate Talks in Glasgow four years ago.

Badenoch has already described reaching net zero emissions by 2050 as fanciful despite the policy becoming law under the previous Conservative government in 2019, and her latest pivot seeks to tap into growing discontent over rising energy bills.

The Tory position stands in stark contrast to the Labour government that has vowed to end new licences for oil and gas exploration, arguing they are not compatible with the Paris Agreement goals of limiting global warming and that they would not lower prices.

Badenoch’s move comes as the Conservative party is trailing Nigel Farage’s populist Reform UK and the ruling Labour party in the polls.

Badenoch, whose position as leader is widely seen as vulnerable less than a year after she took over from Rishi Sunak, has been attempting to stake out a series of more conservative economic positions at a time of concerns over slow growth, rising government debt and higher energy bills.

Ed Miliband, energy secretary, has pledged to make the UK’s electricity supply carbon neutral by 2030, which would require huge investment in upgrading the grid and technologies such as offshore wind and carbon capture, utilisation and storage.

Last week, Ofgem, the energy regulator, said the so-called price cap on household energy bills would rise this winter despite wholesale prices of natural gas falling.

Ofgem said higher prices for consumers were being driven by increasing transportation costs and support for other government schemes.

The UK oil and gas sector boomed in the 1980s helping fund Margaret Thatcher’s reforms of the UK economy. While production peaked more than two decades ago, the industry has warned government policies are accelerating the drop in output from higher taxes to tight restrictions on developments.

Badenoch said the energy crisis, which started with Russia disrupting gas supplies ahead of its full-scale invasion of Ukraine, “underscored that our energy supplies are a matter of national security”.

She argued that the UK had already cut carbon emissions faster “than every other major economy since 1990” and blamed that for higher energy prices in the UK.

The Department for Energy Security and Net Zero said it remained focused on “delivering the manifesto commitment to not issue new licences to explore new fields”, arguing new discoveries would “not take a penny off bills, cannot make us energy secure, and will only accelerate the worsening climate crisis”.

The £10bn agreement will deliver major boost for British defence industry and Glasgow shipyards

The UK defence sector has beaten out international rivals to land its largest ever warship export deal from Norway, as Oslo and London move to deepen defence ties in the face of increasing Russian aggression in the Arctic and north Atlantic.

The deal, which the UK Ministry of Defence said would be worth £10bn to the UK economy, will see Norway buy at least five British Type-26 frigates that will primarily be built in Glasgow by BAE Systems, with first deliveries expected in 2030.

The US, France and Germany had also been competing for the contract, but Norwegian Prime Minister Jonas Gahr Støre said the “strategic partnership” with the UK was “the right decision”.

It would “strengthen our and Nato’s ability to patrol and protect the maritime areas in the High North”, he added.

The MoD said, under the agreement, the UK and Norway would operate a “combined fleet” of 13 anti-submarine frigates “to detect, classify, track and defeat hostile submarines”.

Strengthening Europe’s ability to counter Russian submarine activity in the north Atlantic and Arctic has been a key area of focus for US President Donald Trump as his administration looks to Nato allies to strengthen regional defence.

“With Norway, we will train, operate, deter, and — if necessary — fight together,” UK defence secretary John Healey said on Sunday, adding the frigates would help “hunt Russian submarines” and “protect our critical infrastructure”.

“Our navies will work as one, leading the way in Nato,” Healey said.

UK Prime Minister Sir Keir Starmer in a call with Støre said the deal would lead to “unparalleled interoperability for Norwegian and British forces” and comes ahead of an expected new defence agreement between the two countries.

In the past week, UK, Norwegian and US forces, including Poseidon submarine-hunter aircraft, have been active in the north Atlantic in what was reported as an operation targeting the tracking of at least one Russian submarine.

The MoD confirmed the activity was an “operation” rather than a training exercise, without providing further details.

Norway and the UK also collaborate on protecting critical North Sea infrastructure such as gas pipelines, electricity interconnectors and data cables from hybrid attacks, an area of increased concern since Russia’s invasion of Ukraine.

The deal, the largest ever UK warship export contract by value, is expected to provide a major boost for the defence industry at a time when the government has targeted the sector as key to its economic growth plan.

BAE has also licensed the Type-26 design to Canada and is also building the warships in Australia under a contract with Canberra, while Labour has pledged to raise defence spending to 3.5 per cent of GDP by 2035 from 2.3 per cent in 2024.

Healey said the contract with Norway would support 4,000 jobs in the UK with more than half of those in Scotland at BAE Systems’ shipyards in Glasgow, though one person familiar with the deal said it would sustain existing jobs rather than leading to increased hiring.

Charles Woodburn, BAE chief executive, hailed the deal as reflecting Norway’s “confidence in British industry’s ability to deliver”. 

Another person familiar with the deal said BAE’s order book at its Glasgow dockyard was now filled up for years to come, with there expected to be knock-on benefits to other shipyards in Scotland and the UK who could win a higher share of future MoD and international orders.

The Norway deal alone is expected to support 432 companies in the UK, the MoD added, while Norway said the two countries had a “draft agreement” for the UK to guarantee industrial co-operation with Norwegian industry “equivalent to the total value of the acquisition”.