Despite the profusion of green shoots sprouting everywhere like Japanese knotweed, the Bank of England is still in emergency mode, holding interest rates at a 300-year low and printing money like there’s no tomorrow. I fear there is something not quite right here.

The economic upturn is real enough – if you throw £1.2 trillion of public money at a recession, it has to go somewhere. The banks are still in intensive care, but no longer at death’s door. There’s more lending going on and a lot of worried money has been returning to the stock market to capitalise on the longest rally in six years. Then there’s the car scrappage scheme and the VAT cut which boosted manufacturing and consumer spending – and also demonstrated just how economically dependent we are on environmentally unsound products.

But interest rates were held last week at unprecedentedly low levels – 0.5%. This has never happened before – not in the Great Depression, not in the second world war. Coupled with quantitative easing worth £175 billion, it is really an extraordinary way to respond to a dramatic and unexpected economic rebound. By rights, the Bank of England should be reining in the “recovery” because much of it is clearly built on speculation with cheap money, rather than any objective assessment of the state of the economy. In the real world, bank lending to business is falling, world trade is very sick and fiscal stimuli like scrappage schemes will end soon. Irrational exuberance is never far below the surface of the equity markets, and the central banks are supposed to act as a counterweight to it.

Then there’s the question of moral hazard. It is often assumed that low interest rates are a good thing, but really they are only good news to people with big debts. Ask anyone who listened to all the pious advice last year about saving for the future and avoiding debt, and you’ll find that they are extremely annoyed at seeing their hard-earned savings wither away. Older people on fixed incomes have been plunged into penury. Keeping interest rates too low for too long rewards debt – it transfers wealth from people who have been prudent to people who have been profligate.

This doesn’t make a great deal of sense given that it was debt that caused the credit crunch. The monetary authorities are in danger of repeating the mistakes made in the early years of this decade. Low interest rates have fed into house prices which are actually rising again. This should surely be worrying the Bank of England in case there is another bubble. UK house prices are still overpriced by about 20%-30%. Boosting house prices now only prepares the ground for the next bust.

But what’s much worse are the ­implications for inflation. We keep being told that deflation is the real enemy, not inflation. But, again, this is only if you are someone who has taken on a lot of debt that you can’t afford. Deflation is actually good news for most people, because it reduces the cost of living. Anyway, we have never actually seen this deflationary demon. The Bank of England’s chosen inflation index, the Consumer Prices Index, or CPI, hasn’t fallen much below 2% through the entire economic slump. There is a very considerable risk that pouring money into the system now will ignite a round of high inflation. Indeed, with the rise in the oil price, we may already be seeing this happen. High energy prices push up the cost of everything.

There is an economic fallacy at the heart of much official Treasury thinking on inflation. Ministers and regulators console themselves that workers aren’t in any mood to strike for higher wages, so they think there can’t be any inflationary spiral. Their model is based on the 1970s when organised labour managed to defend living standards by organising against pay cuts. The trades union barons are long gone, but that doesn’t mean that inflation can’t happen. Inflation can also be caused by money supply – by too much cash chasing too few goods. That’s what happened in Germany in the 1920s and Zimbabwe over the last decade.

Right now the UK money supply is being inflated faster than at any time in British economic history, outside the Napoleonic wars. There is what economic historians might once have called a conspiracy to undermine the currency. By keeping interest rates effectively at zero while printing billions of pounds of electronic money, the value of the pound is being eroded as surely as if it had been undermined by counterfeiters.

So why take the risk? Well, governments are always tempted to go down the inflationary route because they think it offers a get-out-of-jail-free card for budget deficits. If you can jack inflation up to 10%, then government debt is halved in a decade. But it damages older people, robs savings, undermines the integrity of the currency and weakens the real economy.

And don’t say that the economist John Maynard Keynes – who is undergoing a revival right now – was an inflationist. He wasn’t. As Keynes’s biographer Robert Skidelsky makes clear in his latest book Keynes – The Return Of The Master: “Keynes believed in [stabilising] prices ... by limiting money growth.” Fiscal stimulus may be necessary in the short term to keep the economy running in a slump, but as soon as recovery starts in earnest central banks have a duty to limit credit growth. Keynes was adamant that maintaining demand in the economy requires stable prices and decent wages or else any economic recovery will be short-lived. Inflation destroys consumption.

I have a horrible feeling that the bank is unwittingly doing the business of politics here. The only people who stand to gain from an unsustainable rebound in house and equity prices are the government, who are looking to win an election next year

There is every risk now of a double dip, as happened in the 1930s. We all want a recovery that is soundly based, but it is simply irresponsible to pump up credit and inflation to create an illusory boom. History doesn’t always repeat itself, but those who don’t learn from it are condemned to repeat the mistakes of the past.