Deterrence, Signaling, and the Withdrawal of the HMS Endurance
Andrew, you're right to note the the specific decision to withdraw the HMS Endurance. Another point to note (to quote myself):
In the same year, Parliament passed the British Nationality Act, which denied the islanders British citizenship. The measure was directed at another set of islanders who would have preferred to stay British, those of Hong Kong; the unintended consequence of the Act’s passage, however, was to suggest that Britain was no more willing to go to war with Argentina than with China. It is fair to fault the Thatcher government for giving signals that hinted of irresolution to the Argentineans – although it is also fair to note, as Thatcher does, that no one in his right mind expected them to do something quite so crazy. “Of course with the benefit of hindsight, we would always like to have acted differently,” she remarked. “So would the Argentineans.”
The moral is less about defense cuts, per se, than about the importance of unambiguous signaling as a deterrent to war.