Vladimir Putin’s invasion of Ukraine continues to put serious financial pressure on people across Russia, according to UK intelligence, and it is likely to only “intensify”.
As the war approaches its third anniversary, Western sanctions against Moscow and the depleted labour force – 1.5 million Russians are currently in the army – were already putting a substantial strain on the country’s economy.
According to the UK’s Ministry of Defence (MoD), the Central Bank of Russia’s (CBR) base interest rate already rose to 21% in October.
The MoD believes that is the “highest rate since the start of the Ukraine conflict”.
The Bank’s governor Elvira Nabiullina has also warned that “more drastic changes” to monetary policy may be necessary to get inflation back under control.
But, if interest rates continue to rise, the burden on businesses will get even heavier – as will their debts.
The MoD said: “High interest rates in the Russian economy are highly likely to restrict business investment and growth.
“Since the beginning of the war in 2022, the volume of corporate loans and the proportion of them tied to the CBR’s base rate have increased.
“As a result higher interest rates are leading to increasing costs of debt.
“These costs are highly likely exacerbating financial pressures on businesses, with corporate bankruptcies in Russia reportedly 20% higher in 2024 than they were in 2023.”
It does not look like these economic strains are going to ease any time soon, either.
Russia’s central bank estimates inflation could reach at high at 8.5% this year, which is twice its target.
And, according to UK intelligence officials, inflation will continue to “intensify in 2025” as government spending rises – Putin has already decided to pump more money into the Russian army.
He increased to take defence spending in Russia to its highest level since the Cold War last month, pushing national defence up by 25% for 2025 (working out to 13.5 trillion roubles, or £108bn).
That works out to 6.3% of gross domestic product and is twice the amount Russia allocate to social needs.
Meanwhile, labour shortages and pressure from sanctions persist.
“This will lead to increasing trade-offs between efforts to control inflation and supporting growth of the Russian economy,” the MoD said.
The analysis comes as potatoes cost around 64% more than they did at the start of the year and amid reports of thefts of butter packs.