HAMPSHIRE defence giant BAE Systems has reported a 10 per cent drop in half-year revenues after a squeeze on military spending.

The group, which produces Astute nuclear-powered submarines and is the largest supplier of land vehicles to the US army, has suffered from cut-backs in transatlantic markets, while orders for Eurofighters to Saudi Arabia have been delayed.

Sales fell to £8.3 billion in the six months to June 30, while underlying earnings fell 3 per cent to £939 million.

However, the group said its order book grew by £900 million to £40 billion, driven by a £4.3 billion increase in demand from outside the UK and the United States.

And its UK manufacturing division saw earnings lift 35 per cent to £420 million despite a drop in sales, helped by building a new destroyer for the Royal Navy .

The increase in profitability is welcome news for the division after its shipbuilding operations were placed under review in a move that could result in the closure of its Portsmouth dockyard.

A recent study found the wider Solent economy would be badly hit by the end of shipbuilding at the historic dockyard, which supports 19,775 jobs in the region, and would result in about 3,925 job losses, including an estimated 1,300 directly linked to Portsmouth Naval Base.

BAE highlighted the work it has been doing in Portsmouth on the major hull sections for the two Queen Elizabeth class aircraft carriers, the handover of a the fifth Type 45 Destroyer, and the delivery of contracts for commercial ship maintenance for Red Funnel , Wightlink and Condor Ferries.

The firm also last month handed over the first of three ocean patrol vessels to the Brazilian Navy under a £133m deal.