British households are suffering surging inflation that could be tackled by raising interest rates, if policymakers led by Governor Mark Carney raised interest rates, according to David Roberts fund manager at Kames Capital.
The Bank is scraping around for excuses to keep interest rates low for as long as possible, including blaming Britain’s vote to leave the European Union, he said.
But the real reason is the Bank’s quantitative easing programme, which has injected £435billion into the economy since 2009 by buying Government debts – known as bonds – said Mr Roberts.
The Bank of England along with central banks across the world now have added almost $18trillion (£14trn) to their balance sheets over the past 10 years, pushing up bond prices.
Raising interest rates risks popping the huge bubble that has been created in bonds.
Record low rates have also helped inflate house prices and borrowing, with markets now baring worrying similarities to 2008, according to Mr Roberts.
He said: “Central bankers globally have expanded their balance sheets to nearly $18trn in the past decade, a sum greater than US GDP.
“They have created the mother of all asset bubbles across most financial asset classes and that, coupled with the ongoing need to fund ever-larger government deficits, means they seek any excuse to keep rates as low as possible for as long as possible.
”Apparently, the main reason for not raising rates in the UK recently was because consumers would face a squeeze this year from the impact of higher inflation, all of which was attributed to a weaker sterling.
“However, if Carney really worried about the squeeze on household income, firstly in part this is a situation he created and secondly, he could help reverse it by raising interest rates.”
Mr Roberts added: “Of secondary concern to the Bank is consumer indebtedness.
“Again, a modest rate increase now can act as a brake on borrowing and curb the worst of bubble mentality excess.
“Brexit and record low interest rates have now sparked renewed concerns about consumer indebtedness and a return to record house prices, and the Bank, along with most central banks, now admits to being worried at the level of consumer debt.
“The last time we heard that was 2008, and we all know how that ended.”