Personal insolvencies and company liquidations have surged in a further sign of the financial turmoil taking its toll on the wider economy.

More than 27,000 people in England and Wales declared themselves insolvent in the third quarter of 2008, a rise of 8.8 per cent on the previous three months, while 4,001 companies went bust, up 10.5 per cent on the previous quarter and 26 per cent on last year.

The figures from the Government's Insolvency Service showed the economy worsening rapidly amid predictions that it would suffer at least as much as in the recession of the early 1990s. The number of company insolvencies is little more than half the number reached in the depths of the last downturn but with the economy only just starting to slip into recession, analysts said that the worst was to come.

Howard Archer, the chief UK economist at IHS Global Insight, said: "The marked rise in the number of individual insolvencies in the third quarter is only the beginning of the storm as recession, faster rising unemployment, higher debt levels, and more and more people being trapped in negative equity will exact an increasing toll over the coming months."

The Bank of England cut interest rates by 1.5 points on Thursday after data showed the economy grinding to a halt. The International Monetary Fund said the UK would be worst hit as a credit drought made the world's richest economies shrink for the first time since the Second World War.

Companies are suffering from a combination of slowing demand, high energy and material costs and a shortage of credit from cash-strapped banks. The Government is applying pressure to banks to keep lending to small- and medium-sized companies to stop them going under.

Personal insolvencies are closely linked to employment rates and house prices. Property values have fallen about 15 per cent from last year's peak, leaving many homeowners in negative equity. Unemployment is rising at its fastest pace since the last recession. David Blanchflower, the strongest advocate of rate cuts on the Bank of England Monetary Policy Committee, has predicted more than two million people will be out of work by year-end.

Experts warned that the figures for personal insolvencies could greatly understate the true plight of debt-burdened consumers because they were turning to informal debt management plans with their creditors, which go unrecorded. There are also signs that households are turning to expensive unsecured borrowing to keep their finances ticking over, but with potentially dire results.

Pat Boyden, a personal insolvency expert at PricewaterhouseCoopers, said: "Credit card debt increased by more than £1bn in September, which could point at credit cards being used to supplement normal household expenditure.

"This has the potential to add a significant sum to household expenditure, putting further strain on outgoings and inevitably leading to further insolvencies in the coming months."