One of the economy’s lingering tumours, one that needs the financial equivalent of radiation therapy, can be found inside the banking industry.

According to a report last week, the banks continue to harbour bad debts that eat away at their health and prevent them functioning properly.

Britain’s slow growth can be laid at the door of banks that remain conservative in their outlook and too afraid to lend to small- and medium-sized businesses.

The National Institute of Economic & Social Research said the only therapy would be a rise in interest rates and quickly. Jagjit Chadha, the organisation’s director, warned that without higher rates the interbank lending system that lubricates the billions of transactions in financial markets and which seized up in the credit crunch would remain sclerotic and economic growth would stay anaemic.

Banks need profits and most of their profits flow from lending money. Without higher interest rates they simply can’t make enough money to extinguish the last of their bad debts.

The institute’s top brass are not the only ones to believe that the UK’s banking system is continuing to act as a dead weight on economic growth.

Lord King, the former governor of the Bank of England, was always a little unhappy in the years after the crash when asked about the Labour government’s reluctance to follow the US example on bailing out the banks.

In broad terms, he would say, the US zapped almost 100% of bad loans, the UK managed to kill off 80% and the continental Europeans about 60%.

It’s one of the main reasons the US recovery has proved to be so much stronger and the eurozone’s so much weaker since 2008.

And it’s easy to see why that might be the case. The major banks sit at the heart of the UK financial system without much challenge. And it is still true that the banks will, in the normal run of things, reject as collateral a business plan or innovative process. They don’t make those kinds of bets. Property is the only thing a bank understands, which means those people with ideas and no property don’t get the loan.

That this still goes on a decade after the first signs of the credit crunch is disappointing if not entirely surprising. The issue is whether increasing interest rates is the answer.

The Bank of England clearly thinks it would be wrong to follow the institute’s advice. At the meeting of its monetary policy committee last week, a majority voted to keep rates on hold.

There is no doubt the committee would like to raise interest rates. Deputy governor Ben Broadbent was the latest to say so when he told BBC radio hours later that Britain was “a little bit” better placed to cope with possible interest rate increases.

“I think there may be some possibility for interest rates to go up a little bit.”

Earlier Mark Carney, the governor, appeared to agree, saying: “In terms of the overall position of households, there is an ability to withstand an adjustment to monetary policy if it’s appropriate.”

But he muddied the waters by adding that Brexit uncertainty was partly responsible for a 20% downgrade in its forecast of where the Bank expected investment to be next year. “It is evident that uncertainties about the eventual relationship are weighing on the decisions of some businesses. We see it directly in the macro-economic numbers, investment has been weaker than we otherwise would have expected.”

Without investment there is no increase in productivity. Without higher productivity there can be no sustainable rise in wages and only with bumper wage packets do you get the kind of nasty inflation that comes from too much money chasing too few goods. That’s when you raise interest rates.

Chadha believes the Bank is confusing the public with its almost weekly “will-she, won’t she” routine over raising rates. He said the Bank was leading a “haphazard” debate that was undermining confidence in the Old Lady of Threadneedle Street.

More than that. Chadha says the Bank is manufacturing its own vicious circle when it argues that weak growth must lead to low interest rates for longer. If you buy the argument that low interest rates are the cause of lacklustre lending and low growth, then intervening to break the cycle with higher rates is the logical thing to do.

Except that it is madness now and probably for another decade while Philip Hammond puts austerity before helping the economy. Britain remains on a life-support drip of easy money at a time it cannot stand on its own two feet. Increasing rates would kill the patient, not shake it out of a lazy torpor.

It was politically expedient for George Osborne to use the Bank to support the economy while he slashed at welfare, public services and infrastructure spending. It’s time the Bank and thinktanks like NIESR said so. So it’s over to you chancellor Hammond. Only a big-spending, redistributive budget can prevent another 10 years of low rates.