A VFR aircraft entering the pattern on a forty five entry experienced a NMAC with traffic inbound on an IFR approach and circling to land.

Narrative

As we were on a 45 degree entry about to turn down wind for Runway XXR Aircraft Y passed immediately in front from west to east in the process of circling to Runway YY. ATC had instructed us to follow Aircraft X turning crosswind. I made two reports: 'Aircraft X not in Sight' and a little while later; 'Aircraft X In sight'. I heard Aircraft Y contact Tower 'that they were on the VOR XX Approach' and ATC called out my position to them and instructed the Aircraft Y to remain at or above 1500' because of the C-152 in the pattern and our approach to the 45 degree entry to XXR from the southwest. When they indicated they were landing; they were instructed to follow us for right traffic for XXR. The Aircraft Y then requested to circle to Runway YY. I do not remember whether a clearance for that request was issued before or after the 'close encounter'. I do not remember the Aircraft Y receiving any further call outs on my position or it acknowledging ever seeing us. I did make an announcement to ATC that the Aircraft Y had just past in front within 50 feet and believe ATC replied 'follow Aircraft X on downwind'. I feel that ATC should have kept the altitude restriction and instructed Aircraft Y to start their circle well prior to the missed approach point and well to the south of the XXR traffic pattern and standard entry zone. Alternatively; we could have been instructed to look for Aircraft Y and/or given a clearance for additional separation. (Times and altitudes are estimates)