Britain’s economy has depended so much on credit that the country could now be facing recession, an expert has warned.

Dr Peter Warburton, who sits on the shadow monetary policy committee at the Institute of Economic Affairs, made his comments to BBC Radio 5 Live’s Wake Up to Money programme yesterday, prior to the base rate announcement.

The Bank of England’s monetary policy committee declared shortly after his comments that it was to cut interest rates to 5.25 per cent, the second cut since December.

"Basically the credit crisis hasn’t been resolved … What’s happening is that the availability of credit has been reduced, regardless of the price," Dr Warburton asserted.

While the base rate cut could be good news for many borrowers, for some the relief will come too late.

The rising cost of fuel and food has been stretching some household finances to extremes and some Britons now face the possibility of bankruptcy.

One alternative, however, is an individual voluntary arrangement, also known as an IVA.

These court-approved agreements allow borrowers to retain important possessions such as their home and to become debt-free within a set period, usually five years.