Short-sellers are ramping up their bets against struggling defence outsourcer Babcock amid concerns of a funding black hole and shares in other government contractors collapsing.

The FTSE 250 firm has been targeted by hedge funds, including Carillion short-seller Marshall Wace, since it warned late last year that a review into defence spending could delay programmes and knock future earnings.

The Ministry of Defence is Babcock’s largest customer and, although it is trying to identify other revenue streams, it is heavily dependent on government arms spending, which is under intense pressure.