In the port from which Nelson set sail to find immortality at Trafalgar and where his flagship, HMS Victory, is still a massive draw, there is a sense of relief that British shipbuilding has a future after the Ministry of Defence decision finally to sign the contract for two new supercarriers.

Tony Brown, 43, whose father was an engine fitter in the dockyards, had been out of work for seven years when he was taken on as a mature trainee at the yard last year. “To have long-term work means there's a positive feeling about the place,” he said.

Stewart Sykes, 20, a light plater, agreed. “It's been hanging there like a carrot for so long. It was there, then it wasn't, then it was. It's wonderful to know that we have the carriers, especially with the history here.”

Shipbuilding began in Portsmouth in the Middle Ages, but in recent years the industry has appeared to be in terminal decline. The last time that a ship was built in the yards was in the late 1960s and in the 1980s further cutbacks meant the end of large refits in Portsmouth in favour of servicing.

The joint venture between BAE Systems and VT Group will sustain 1,200 jobs in the city for the next six years and hundreds more in support roles once they are completed.

VT decided to shift its Southampton shipbuilding operation to Portsmouth in 2002, prompting “Back to the glory days” headlines. They may not have been quite accurate. In 1945 about 25,000 civilians toiled in the naval dockyards. Nevertheless, no one is in any doubt about the significance of this latest news. “To bring that iconic industry back into the city was fantastic,” said Francis Paonessa, managing director of VT's shipbuilding operation in Portsmouth.

The VT yard will build 6,000-tonne, 70-metre (230ft) sections of the carriers, which will then be welded to the rest of the ships at Rosyth on the Firth of Forth. The contract will mean that VT employees who have been building six Type 42 destroyers for the Royal Navy and patrol vessels for Trinidad & Tobago and Oman will be kept in work until at least 2014.

The news comes after Portsmouth's triumph in the FA Cup for the first time in 69 years. Mike Hancock, the Liberal Democrat MP for Portsmouth South, says that the city is “buoyed up” and aimed a shot across the bows of the old rival. “Portsmouth is on the up and Southampton is treading water. I used to be jealous of Southampton but now the boot is on the other foot.”

Portsmouth is an island city of 192,000 inhabitants, and some locals still refer to it as the North Island, to differentiate it from the South Island, better known as the Isle of Wight. It is the most densely populated place outside London, with large areas of tightly squeezed terraced housing and little outdoor space.

There are pockets of deprivation, but extensive regeneration is in progress. The Tricorn Centre, a notorious Brutalist shopping centre reviled as one of Britain's greatest monstrosities, has been demolished and a huge redevelopment is planned. Plans are afoot to move Portsmouth FC from the cramped Fratton Park to a much bigger stadium on the edge of the city.

The city's landmark, the 170-metre Spinnaker Tower, had a chaotic financial birth but is now on a list of the must-see buildings in Britain. Some 750,000 visitors pour into the historic, renovated naval dockyards to see HMS Victory and the wreck of the Mary Rose, Henry VIII's warship that was recovered from the Solent.

Peter Goodship, chief executive of the charitable Portsmouth Naval Base Property Trust, said that ten years ago Portsmouth was “an oasis of deprivation”. Now he is leading a campaign to have Portsmouth Harbour, the Isle of Wight and Spithead listed as a World Heritage Site. “We wouldn't have had the confidence even to contemplate that ten years ago,” he said.

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