Thousands of people in Britain are being put at risk from loan sharks as the recession continues to bite, research claims.

Thinktank the New Local Government Network (NLGN) said a combination in the fall in sub-prime, or ‘door-step’ lending and the economic downturn may lead an additional 35,000 people to turn to illegal loan sharks.

Author of the report, Chris Leslie, said: “There is evidence to suggest that the pernicious trend of illegal unsecured lending at extremely high rates of interest, or ‘loan sharking’, is making a comeback.

“The diminished availability of regulated sub-prime credit is creating conditions where a sizable number of people have little option but to borrow from illegal sources.

“At least 165,000 people already use loan sharks in the UK and we can expect the number to rise sharply.”

The legal sub-prime market has slumped since the financial crisis began and many have either tightened their criteria or declared for bankruptcy.

The thinktank has urged local authorities to put additional resources into local credit unions and even to use new Council Banks to offer affordable credit to people who cannot access high-street loans.

Loan sharks are unlicensed money lenders, who operate illegally. Some credit unions have reported loan sharks charging interest of up to 2,500,000 per cent.

The NLGN said areas of the country most likely to be affected by loan sharks include Stoke-on-Trent, Lincoln, Manchester and Gateshead.