UK intelligence says inflation in Russia will increase pressure on its ability to sustain high defense spending

The UK Ministry of Defense said this in an intelligence update published on social media platform X, according to Ukrinform.

According to the update, on March 21, 2025, the Central Bank of Russia (CBR) decided to hd the key interest rate at 21 per cent. The report added that interest rates are at their highest level in over 20 years, compared to a pre-war interest rate of 8.5 per cent in January 2022.

"While interest rates remain high, the number of corporate bankruptcies will highly likely increase in Russia," the report stated.

In November 2024, the ruble depreciated to its lowest rate since the beginning of Russia's invasion of Ukraine in 2022 (114 per U.S. dlar). The ruble has since appreciated to a high of 81 per U.S. dlar in March 2025.

"The appreciation of the ruble will highly likely reduce federal revenues from oil and gas, in ruble terms, increasing pressures on the federal deficit," British intelligence said.

However, despite the ruble's appreciation, inflation has continued to rise. In February 2025, inflation rose to 10.1 per cent from 8.5 per cent in October 2024, when the interest rate of 21 per cent was introduced.

"Labor shortages, alongside high levels of government spending, almost certainly mean inflation will remain above the CBR's target of 4 per cent through 2025. Long-term inflationary pressure will highly likely exacerbate pressures on Russia's ability to sustain high defense spending," the update said.

Earlier, the Institute for the Study of War (ISW) noted that the Kremlin continues to conduct an information campaign, likely aimed at both domestic and international audiences, intended to conceal the extent of the negative impact of the war on Russia's economy.