The Post Office has rejected calls from the Liberal Democrats to abandon its ties with the Bank of Ireland as fears over the Irish economy grow.

The organisation, which has 2m British customers, uses Bank of Ireland to run all its financial products, including its popular growth bonds and Isas. These accounts are not covered by the UK Financial Services Compensation Scheme — instead, customers must rely on a guarantee from the Irish government that 100% of their savings will be repaid.

Last week, Ireland unveiled an emergency budget containing measures to boost the economy, after which Fitch, the ratings agency, stripped it of its AAA debt rating. The downgrade came despite the European Commission’s endorsement of the budget measures.

Lord Oakeshott, the Lib Dem Treasury spokesman, said: “The market’s message is that this is a shaky bank backed by a shaky government. It is time for the Post Office to seriously re-evaluate its commercial relationship with the bank.”

However, Patrick Waldron, chief executive of the Post Office’s financial services — whose previous job was in Bank of Ireland’s retail division — insisted Ireland was not “the next Iceland”.

He told The Sunday Times: “We are comfortable with the safety and protection of Post Office customer funds.”