At a garage on the Holloway Road in north London, businesswoman Olayinja Badejo was aghast last week as she watched the petrol pump while filling up her car.

“It’s really appalling – over £1 a litre. That’s too much,” said Badejo, a mother of three who drives a Toyota Previa people carrier. “I run a small business and have three small children, so I’m using my car a lot for both. I have to.

“Two of my children attend different schools in opposite directions. They are trying to encourage us not to use cars, but there is no alternative.”

Like many others Badejo is feeling the heat of high oil prices: petrol is now more than £1 a litre as crude oil prices threaten to hit $100 a barrel – a rise of 50% this year.

Not far away Robin Henry was facing a different financial setback. Over the years he had been bombarded with offers of credit cards and had finally decided to accept one from his bank. It had told him he had been preapproved for a new card.

“I recently switched to internet banking, where credit cards can make it easier to manage payments and offer greater security for online purchases, so I decided to take them up on the offer,” said the 28-year-old freelance writer.

But instead of a shiny new card arriving in the post, he got a letter turning down his application and telling him to apply for a credit report. He was annoyed: a month earlier he had passed a credit check without any problem.

“However, my bank is now adamant I am a credit risk,” he said. “They seem to be moving the goalposts.”

They are. After years of easy credit, the taps are being turned. It is the real-life impact of a credit crisis that has been rumbling around the world’s financial markets.

That crisis, which forced Northern Rock to seek a bail-out by the Bank of England, has sparked serious jitters in stock markets and sent the dollar tumbling – so much so that last week even Gisele Bundchen, the Brazilian super-model, said she wanted to be paid “in almost any currency but the US dollar”.

An even bigger shadow also hangs over the economy. Fears of a recession in America are growing and, say some experts, the more it sneezes, the greater the risk a similar chill will befall Britain.

Such global financial turmoil threatens to push tens of thousands of indebted British families to the brink and will tip some of them over the edge. At the same time the long boom in house prices seems to be grinding to a halt. Halifax, Britain’s biggest mortgage lender, reported last week that house prices fell in October for the second month in a row.

How ominous is this confluence of bad events? And what is it likely to mean for individuals?

When the Labour government took office in May 1997, petrol was just over 50p a litre and filling up the average family car cost about £25. Gordon Brown felt emboldened enough to “overindex” petrol taxes – raising them by significantly more than inflation. One of the consequences was a sharp rise in prices, to nearly 80p a litre by September 2000, prompting protesters to blockade refineries, which threatened to bring the country to a standstill.

Part of the reason for the present rise in prices is that Alistair Darling, the chancellor, sneaked through another increase in excise duty at the start of October. More tax increases are in the pipeline.

But the key factor this time is the surge in oil prices to nearly $100, close to a record level even after adjusting for inflation. In 1980, after the fall of the Shah of Iran, prices hit the equivalent of $101.70 a barrel.

That sent the world economy into recession and prices fell rapidly. By 1982 oil was down to the equivalent of $60 a barrel and by 1985 to $20.

This time, however, global growth and oil demand looks much stronger, particularly in countries like China and India. At the same time the oil producers of Opec, the Organisation of the Petroleum Exporting Countries, cut production earlier this year. High demand suggests high oil and petrol prices are here to stay.

On the other hand, the rise in oil prices has partly been fuelled by speculators, including hedge funds, pouring money into betting on a higher price, which has become a self-fulfilling prophecy. Some in the market think the price will fall back when investors decide to take profits; but nobody is sure.

The threat to consumers posed by the credit crunch is clearer, and in America the pain is already being felt. A property slowdown that began 18 months ago is turning into a rout. Housing activity – including construction and sales – dropped 20.1% in the third quarter of this year after an 11.8% drop the previous quarter. House prices are falling in almost every big metropolitan market outside New York.

“We are in a steep downturn and the prospects are that it is going to get worse before it gets better,” said Mark Zandi, an economist at the Moody’s credit-rating company.

Investment banks are estimated to have lost up to $200 billion on risky loans to weak borrowers who jumped at the chance to take out mortgages with low introductory rates. Now higher rates are beginning to kick in, borrowers are defaulting in droves.

It is the link between these mortgage defaults on so-called “sub-prime” loans, and other financial instruments that is causing wider problems. Sub-prime mortgages were packaged up and turned into financial instruments that banks have traded widely across the world. Now those instruments, like the US housing market, are in freefall and the banks are feeling the effects.

The chiefs of big international banks have been forced to resign, including Chuck Prince, head of Citigroup, the world’s biggest bank. On Friday Wachovia, America’s fourth-largest bank, stunned the markets by announcing more than $1 billion of sub-prime related losses for last month alone.

The fear – and perhaps the losses – are contagious. On Friday Barclays, one of Britain’s biggest banks, was forced to deny rumours it would have to write off $10 billion (£4.8 billion) as a result of its exposure to the “toxic” financial instruments based on sub-prime mortgages.

Nobody is sure when the credit crunch caused by the sub-prime problems will end or how wide its impact will be.

In the meantime, the consequences are hitting consumers in Britain. The number of people rejected for new credit cards has soared to 3.3m in the past six months as banks have toughened up criteria for issuing cards. Interest rates on some cards have increased.

Nearly half the applications for new loans were rejected last month, as banks threw out potential borrowers because they were worried they would not keep up the payments.

Britain’s own sub-prime mortgage borrowers, those with a history of credit arrears, county court judgments or bankruptcy, face a 2.5 percentage point hike in their mortgage rates when they go to their banks to refix their loans. They account for 3%-4% of all borrowers and some will no longer be able to borrow at all.

Businesses are also hurting. Last week the Bank of England left its official interest rate unchanged at 5.75%, which some analysts took as a sign of confidence. But for 60% of businesses in Britain, borrowing is linked to money market rates that remain well above the Bank’s official rate.

A report by Citigroup on Friday predicted the end of the boom in “buy-to-let” housing. Since the credit crisis broke, the number of buy-to-let mortgage products available to landlords has dropped by 40%. The rise in the cost of borrowing means many properties now bring in significantly less in rent than they cost the landlord in mortgage interest.

“So far the effect on households of the credit crisis has been limited but we are likelyto see rising spreads for mortgage borrowers adding to the downward pressure on the housing market,” said Vicky Redwood of Capital Economics. “We’re not looking for a consumer recession but we are heading into the toughest conditions for quite a while.” Capital expects house prices to drift lower for the next two years.

Already, say some, Britain’s appetite for spending is being curbed. “It’s the first time I can remember going into a pub and the banter is about $100 oil, Northern Rock and the US sub-prime mortgage crisis,” said Tim Denison of SPSL, a retail psychologist.

“I don’t think Christmas is going to be a washout but I’m saying to retailers that they shouldn’t get their Christmas decorations out too early – people aren’t feeling very festive at the moment.”

Amid the jitters, some are holding their nerve and others seeing silver linings. A New York tycoon created a buzz last week by committing himself to a $150m deal to buy what will become the most expensive apartment ever sold in America.

Leonard Blavatnik, a Russian-born real estate magnate said by Fortune magazine to be worth at least $7 billion, snapped up the top three floors of the Mark hotel, a landmark building near Central Park undergoing renovation. Blavatnik’s new pad will reportedly comprise 23 bedrooms and 25 bathrooms.

In a rather different way Laura Hughes, a 25-year-old in Mold, north Wales, has decided the Big Apple has other attractions. She will jet off this month for a week of bargain-hunting in a New York suddenly made cheaper by the falling dollar.

“It just seems like too good an opportunity to miss,” she said. “I’m combining a winter break with cheap Christmas shopping. It’s crazy to think the most glamorous city in America is going to be cheaper than northwest England. I know quite a lot of my mates who are doing the same thing and none of us are big earners.”

But the risks of the present economic dislocations outweigh the benefits, and the sliding dollar was causing deep concern for one visitor to Washington. Nicolas Sarkozy, the French president, warned that the dollar’s plunge could lead to “economic war”.

“The dollar should not remain simply a problem for others,” he said. “If we are not careful, monetary disorder risks descending into economic war, of which we would all be victims.”

It has not come to that yet; but in the City of London fears are growing. Josef Ackermann, head of Deutsche Bank, said last week that although his bank was not badly affected it was the worst crisis for banking in his 30 years in the business. At the headquarters of a high street bank one despondent worker summed up the mood: “It’s bad. There’s a fear and loathing level of panic. I don’t know if I will be affected, nobody does. But then you don’t find out these things until it’s too late.”

What would happen if we’re lucky . . .

The credit crisis quickly blows over, and banks resume normal lending activities.

Confidence returns to America’s gloom-ridden housing market and prices stabilise, as China, India and other Asian economies keep the world economy growing.

In Britain, the housing market slows but does not topple over into slump as the Bank of England gradually trims interest rates.

Oil prices come down as the speculators take profits, as happened last winter when they dropped from $80 to $50 a barrel.

Britain’s 15-year economic expansion continues with barely a hiccup, with employment growing and the jobless total falling.

The last time there was a big international financial crisis, in autumn 1998, Britain surprised the doubters by growing much more strongly than expected the next year. Some say history will repeat itself.

... and if we’re not

A big bank discloses that it can’t meet its financial obligations, sending the financial markets into panic and turning the credit crisis into a full-blown credit crunch.

America’s housing market continues its slide and fears grow of a prolonged, 1930s-style recession.

Oil prices continue their climb, rising to $150 and then $200 a barrel. Because the Bank of England has to keep inflation under control, it is forced to raise interest rates, despite the crisis. Britain follows America into recession, unemployment rising sharply and employment falling. Tension about immigration grows.

As in the early 1990s, the combination of rising unemployment and high interest rates leads to a slump in house prices.

Nearly £1,400 billion of household debt leaves families more exposed to the downturn than ever before. Repossessions and individual bankruptcies soar.