CEBR predicts that the number of financial sector jobs in London will decline by 28,000 in 2008, from 2007 levels. A further 34,000 jobs are set to be shed in 2009.

City job levels will fall from 353,000 in 2007 to 325,000 in 2008 and 291,000 in 2009. This will return total staffing numbers to those seen a decade ago.

The chances for a strong bounce-back in the City from 2010 onwards "also appear to be slim", says CEBR.

The figures are a dramatic revision of CEBR's forecasts in April when it said 20,000 City jobs will be culled over the next two years. This was a revision of its October 2007 report which predicted jobs would decline by 6500 in 2008, but suggested losses would be "short lived" with most sectors seeing increases in 2009 as the US economy and the financial markets recover.

But Richard Snook, senior economist at CEBR, says the credit crunch "has spiralled in to what is the worst financial crisis since the 1930s".

"It has spread through global markets like a virus and threatens to plunge the world into recession. The City will be hard hit by the crisis; we expect it will set back by a decade," says Snook.

The worst hit sector over the next two years will be corporate finance, which is likely to lose half of its 15,000 employees over the next two years as the appetite for mergers and acquisitions and leveraged buy outs weakens.

Employment in derivatives will fall 46% over the next two years, whilst legal and professional services, insurance, fund management, securities and equities sectors will all see headcounts cut by 10% to 20%.

Douglas McWilliams, CEO, CEBR, says events have gone from bad to worse for the City, with government intervention that was unimaginable two years ago now seeming commonplace.

"When the dust settles we will see a very different City, with much stricter regulation, risk management and a greater emphasis on due diligence," adds McWilliams.