New figures show the number of people who were declared insolvent fell for the first time in nine years during 2007.

But despite the drop, many experts believe that levels will hit a new high in 2008, and that the latest dip is simply the "lull before the storm".

The Insolvency Service figures show that 106,645 people were unable to keep up with their debts last year, a 0.6% fall on 2006, but still the second highest figure on record.

At the same time the number of bankruptcies jumped by 2.4% during the period, although a decline of nearly 5% in the number of consumers taking out individual voluntary arrangements (IVAs) pulled the overall figures down.

But most economists believe that the number of people who are unable to keep up with their debts will begin climbing again this year.

They are predicting that insolvencies will reach a record level during 2008, as financially-challenged consumers battle to cope with rising living costs and higher mortgage repayments as homeowners come off low fixed-rate deals.

Mark Sands, director of personal insolvency at KPMG, said: "The broader picture is that although the number has dropped, almost every economic indicator suggests that things are going to get worse before they get better.

"We remain concerned that the credit crunch and mortgages expiring for people with cheap fixed-rate mortgages and the IVA protocol mean it will bounce back in 2008."

He predicts insolvencies will hit a new high of 130,000 this year.

Howard Archer, chief UK and European Economist at Global Insight, agreed.

He said: "The financial pressure on a number of households is likely to increase appreciably over the coming months.

"Those with the weakest credit ratings will be increasingly hit by tighter lending conditions and more punitive terms.

"Furthermore, the full effect of the marked overall increase in interest rates since August 2006 is still feeding through, with a substantial number of homeowners now seeing their mortgage bills rise markedly as the cheap fixed rates that they took out in the second half of 2005 expire."

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