BAE Systems has signalled a return to earnings growth this year amid hopes of "greater stability and improving clarity" in its key markets.

The forecast comes after the defence and security products company reported a £1.5 billion drop in sales to £16.6 billion for 2014 and said underlying earnings fell by 11 per cent to £1.7 billion.

BAE, which employs more than 80,000 people worldwide, described the performance as solid, reflecting the ongoing impact of defence budget spending constraints as well as a £600 million hit from currency movements.

It pointed out that it won more than £10 billion of new orders from the UK and US for the third successive year, resulting in an order backlog of £40.5 billion.

Chief executive Ian King said underlying earnings were expected to be marginally higher this year.

He added: "Looking ahead, defence spending remains a high priority in a number of international markets.

"In the UK, we benefit from long-term contracts, notwithstanding continued pressure on public spending. We believe US budgets are now relatively stable, with some early indications of a modest improvement in 2016.

"These are competitive times and we will continue to invest in and develop the technology, skills and market positions needed to drive the business forward."