BAE said the contract would sustain around 4,000 jobs across the UK, and enable it to invest 70 million in upgrading manufacturing lines, with most of the investment due to take place by 2026.

"Defence underpins hundreds of thousands of jobs across all four corners of the nation, and ongoing investment is crucial as we work together to build back better and stronger from the COVID-19 pandemic," Jeremy Quinn, a junior defence minister, said in a statement.

Earlier in November, Britain announced its biggest military spending increase since the Cold War, pledging to end the "era of retreat" as it seeks a role in the world after Brexit.

At the same time, the government is grappling with the fallout from the pandemic, which has hit its economy harder than most other rich countries, and amid forecasts that unemployment is likely to peak at 7.5%.

Under BAE's new 15-year contract for the supply of munitions to the UK armed forces, BAE will spend 350 million pounds with UK-based companies on raw materials and machine components. The new agreement succeeds the current one which ends in 2022.

BAE directly employs 1,260 people in munitions manufacturing and testing at five UK sites including Glascoed in Wales and Bishopton in Scotland.

($1 = 0.7506 pounds)

(Reporting by Sarah Young; editing by Guy Faulconbridge)