DEFENCE and security giant BAE Systems has warned sales were likely to fall this year as it bears the brunt of spending cuts in the UK and United States.

The group, which has around 650 staff in Newcastle and more than 200 in Birtley, saw a small rise in underlying earnings to £2.2bn last year but offered a cautious tone on prospects, particularly as it continues to grapple with the implications of October’s UK defence spending review.

With Government customers looking for cost savings, BAE has cut more than 15,000 jobs over the last two years in order to boost competitiveness.

In the US, BAE said the defence and security markets continue to generate a number of opportunities despite budgetary pressures. And in India, where BAE is working to boost its presence, defence spending is expected to grow substantially, according to the company.

Overall sales rose 2% to £22.4bn last year, while earnings were up due to growth in its division providing electronic systems for the US military.

However, its land and armaments division saw sales fall by 12% to £5.9bn and earnings remain flat at £604m as the division responsible for the design and production of armoured combat vehicles, naval guns and missile systems suffered due to pressure on defence budgets.