THE MANAGER of the £1.5 billion Murray International investment trust has accused the Bank of England of acting irresponsibly by not raising interest rates and warned there is likely to be a recession when it eventually does.

Bruce Stout, who as of this week is employed by Standard Life Aberdeen after his former firm, Aberdeen Asset Management, merged with rival Standard Life, said the reason for this is that the economy in the UK is currently being driven by access to cheap credit.

When interest rates begin to rise from their historic low of 0.25 per cent, which they are expected to do at the beginning of next year, it will lead to an immediate slowdown in spending, Mr Stout said, adding that this effect would not have been so marked if rates had gone up when borrowing was at a lower level.

According to the Bank of England household debt on everything from personal loans and credit cards to car finance deals rose by 10 per cent in the last year while wages increased by just 1.5 per cent.

“The most worrying trend at the moment is the slump in household savings and the sharp rise in consumer credit, which suggests that pricing power is being eroded,” Mr Stout said.

“People are borrowing more to maintain the same level of consumption and that’s a very dangerous position to be in.

“When eventually interest rates do rise then we will almost certainly have a recession because growth is being driven by personal consumption.”

As a result the trust, which generated a net asset value total return of 9.4 per cent in the six months to the end of June, outperforming its benchmark indices by 3.8 percentage points, is shying away from companies that are exposed to the UK market.

Although 12 per cent of its assets are invested in UK equities, Mr Stout said that these tend to be businesses that are listed in the UK but do most of their business overseas, such as HSBC, Royal Dutch Shell and Standard Chartered.

This is especially so, he said, because UK and European businesses are being damaged by the uncertainty over how they will operate following Brexit.

“We have an opaque outlook because nobody knows what’s going to happen here on leaving Europe,” he said.

“If you’re running a business you have to invest for the future but a lot of companies are sitting on their hands, running their business for cash to pay their staff and keep the lights on.

“They don’t know where they will be in 18 months time. That’s a horrible place to be; it creates a vacuum.”

As a result, the trust’s largest geographic exposures are to Latin America and Asia, with Taiwan Semiconductor Manufacturing and Unilever Indonesia among its best performing stocks in the first half of this year.

Mr Stout said he likes these companies because they are “very transparent”, meaning it is easy to see where their earnings growth is coming from.

“A lot of the earnings growth in the developed world we see today is manufactured by buying back stock and various other dark practices to make it look like earnings growth is stronger than it is,” he said.

“The emerging world has pretty good organic growth.”

Looking ahead to the rest of the year Mr Stout said he is “worried about everything” and as a result has moved the trust into “as defensive a position as possible”.

This means its equity exposure is the lowest it has been since 2007 at 81 per cent while it is more diversified than it was previously, with 50 equity positions and 27 bond holdings.

The trust, which recently negotiated a £60 million, five-year loan facility from Royal Bank of Scotland that has a fixed rate of 1.7 per cent, has also reduced the amount of gearing it will use to invest in equities.

At the end of June net gearing stood at 10.8 per cent.