A slowdown in consumer credit that started in 2005 might be continuing, but people are being told to prepare for the largest-ever peacetime liquidity crisis in Britain. Earlier this week, the Financial Services Authority’s chief executive, Hector Sants, warned that consumers would never see a return to the days of cheap, easy credit that have helped borrowers to rake up a collective debt mountain topping 1.4 trillion pounds. Then, Rachel Lomax, deputy governor of the Bank of England, warned that the present financial crisis would persist — and possibly intensify. In a speech to the Institute of Economic Affairs, she foresaw more financial shocks but was unable to predict what impact they might have.

If recent events are anything to go by, it does not bode well for over-indebted consumers. The credit crunch is increasingly feeding through to the consumer: loan rates have jumped, huge swathes of people applying for unsecured and secured credit have seen their application turned down, and millions of people whose mortgage deal is set to expire are in line for a nasty “rate shock” — an increase in repayments heightened by lenders vying to increase their margins.

Against this backdrop, and with weak consumer confidence and a slowing economy, many consumers are planning to pull in their purse strings. “Faced with such uncertainty, homeowners who are nearing the end of their mortgage deal may need to drastically prune their household expenditure in order to meet higher mortgage repayments,” says David Kuo, head of personal finance at Web site Fool.co.uk. “While sophisticated economic models are unable to identify the extent of the current credit crisis, consumers can stick to the tried-and-tested model of living below their means. Doing so sooner rather than later will help cushion the blow.”

Consumers are, perhaps unsurprisingly, seeking new ways to earn extra cash. The Direct Selling Association is predicting a 10 percent increase in the number of direct sellers in 2008, boosting the UK’s 400,000-strong direct seller workforce. People can each as much as 50,000 pounds per year selling goods directly to family, friends and neighbours, it says.

The trend has also been seen by Avon, the world’s biggest direct seller of cosmetics, which sells more lipstick, skincare and nail polish than any other brand in the UK. It reports a 25 percent year-on-year increase in new recruits. Based on this, they expect to enlist almost 4,000 new representatives this year.

For some people, though, flogging beauty products will not be enough. If anecdotal evidence from insolvency experts is anything to go by, more and more people are succumbing to an unmanageable level of debt and are having to take out an Individual Voluntary Arrangement (IVA), an alternative to the grim prospect of bankruptcy, which allows people to settle debts with less damage to their credit rating and employment prospects. As a last resort, they can file for bankruptcy.

People who would rather consolidate debts with a low-cost loan or re-mortgage to release capital tied up in their homes to pay down debt are now finding these doors closed to them, especially if they have a few black marks on their credit file, according to Terry Balfour, managing director of IVA comparison Web site IVA.com. The problems are compounded by the fact that many lenders have pulled 100 percent-plus deals, says Paul Carter, chief executive of Debts.co.uk. A simplified IVA — SIVA for short — due to be introduced on Oct. 1 will help to stoke the number of people going down this route, says Carter. “There’s going to be a sharp rise in people turning to other solutions, such as IVAs, bankruptcy and debt management as well,” he told Reuters. “2009 will be a very busy year for our industry.”