The deputy governor of the Bank of England has warned that rates are to rise this week to head off an unsustainable boom in the City and also that of the property market in the UK.

The crisis must be controlled by higher interest rates according to Sir John Gieve, who cautioned that "spectacular growth" in borrowing for buyout and private equity deals could 'endanger the banking system and cause sharp financial downturn.

The next incremental rise is expected to be from 5.5% to 5.75% on Thursday - if this happens then it will be the fifth rise in a year and put an enormous amount of pressure on household budgets. In a remarkable speech Mr Gieve outlined that Britain's economy and property market has become distorted - probably due to London emerging as the private equity and hedge fund capital of the world. Commercial property prices in London are now twice those of Paris or New York.

Mr Gieve said, "House price inflation in London has outstripped the rest of the UK with prices in the smartest areas of Kensington and Chelsea climbing by 40% since the start of 2005."

Residential rents in London are also higher than their nearest competitors - not bad news if you are one of the high paid financial workers who took home large sums in bonuses last year - but awful for those earning the average 100 times less than this group.