Russia is set to increase its spending on defence by 25% in 2025, the highest since the cold war, as Vladimir Putin vows to continue his war efforts in Ukraine and further escalate his standoff with the west.

The latest planned increase in spending will take Russia’s defence budget to a record 13.5tn rubles (£109bn) in 2025, according to draft budget documents published on Monday on the parliament’s website. That is about 3tn rubles more than was set aside for defence this year, which was the previous record.

Taken together, spending on defence and security will account for about 40% of Russia’s total government spending – or 41.5tn rubles in 2025.

The 2025 budget suggests that Putin has embraced what economists have dubbed “military Keynesianism”, marked by a significant rise in military spending, which has fuelled the war in Ukraine, spurred a consumer spending boom and driven up inflation.

“This increase is confirmation the economy has switched to a war footing, and, even if the war in Ukraine ends soon, channeling money to the army and a bloated defence sector will remain a top priority,” the Bell, a leading Russian outlet specialising on the economy, wrote in its newsletter.

“It’s clear that spending on the military and security will exceed combined expenditure on education, healthcare, social policy and the national economy,” the outlet added.

According to the draft budget, social spending is expected to decrease by approximately 15.58% from 7.7tn rubles this year to 6.5tn rubles next year.

The massive Russian investment in the military has worried European war planners, who have said Nato underestimated Russia’s ability to sustain a long-term war. Meanwhile, Ukraine is facing uncertainty over the level of future support from its closest allies.

This has increased confidence in Moscow where on Monday Putin boasted that “all goals set” in what Russia calls its special military operation “will be achieved”.

Putin’s speeches over the last year have been marked by growing confidence as Russian troops make creeping gains in eastern Ukraine.

Recently, he has taken a hardline stance, demanding Ukraine’s unconditional surrender and calling for the “denazification of Ukraine, its demilitarization, and neutral status”.

Still, analysts believe the long-term economic outlook for Russia is far gloomier than it was before the invasion.

The Kremlin’s pivot toward China and other markets, sanctions-busting and other workarounds cannot make up for direct access to western markets or technology.

And Russia’s military spending boom has sent inflation surging at home, forcing the central bank to raise borrowing costs, while the country struggles with acute labour shortages as Moscow pumps fiscal and physical resources into the military.