Speaking on the BBC’s Andrew Marr Show, he said if interest rates were not increased by the Bank of England, there was a danger that large parts of London could end up being inhabited only by foreigners and bankers as house prices spiralled.

He added that, on the other hand, if interest rates were increased it would have a negative impact on UK manufacturing since exchange rates would rise, making exports harder.

It is the first time Cable has spoken so openly about the possibility of interest rates rising due to the imbalance in the economic recovery.

He again called for the government to rethink its Help to Buy scheme, which he said was conceived in entirely different circumstances.

Cable said: “There is a raging housing boom in London and the south-east, and not in other parts of the country.

“The danger of raising interest rates is that you hit those parts of the country which are not yet fully recovered, you push up the exchange rate and that hits manufacturing.

“We don’t want that. On the other hand, if you do not increase interest rates – if that is the way the governor and the Bank of England go – then this boom that is taking place in housing prices gets out of control and the only people that can afford to live in large parts of London are foreigners and bankers, and we don’t want that either.”