The number of City jobs in London's financial district recovered to the dot.com-boom peak levels of 2000 this year, rising 9700 to 325,700, but this growth is set to slow to just 3000 in 2006, according to the Centre for Economics and Business Research (CEBR).
CEBR says although there was considerable expansion in the number of City jobs in 2005, growth is set to slow to an increase of just 2997 jobs in 2006 and 1826 jobs in 2007.
Dominic Walley, managing economist of CEBR, says: "The City has had a much better time this year as a result of the recovery in M&A, and the continuing rise in the UK equity market and this has been reflected in increased job numbers.
"But next year we expect the pace of world economic growth to slow and for this to be reflected in financial activity, so jobs growth is likely to be much lower."
CEBR says as business growth slows down, it is expected that there will be more people chasing after the same business, and there will be a more competitive environment.
According to this year's research, professional services jobs are expected to rise by 2000 in 2005 (2.7%) on the back of increased IT spending and rising use of outsourced services.
Sectors enjoying the highest jobs growth this year will include corporate finance, which is expected to have the highest jobs growth rate in 2005 at 12.0%, with 14,400 jobs this year. International banking is likely to have the largest volume growth in jobs in 2005, with 3100 additional jobs (up 5.8%), while securities trading is likely to have added 2100 jobs this year, up to 81,500 and fund management jobs are expected to expand at 2.4% in 2005 to 40,300 and adding another 1.9% next year.
Overall CEBR says financial sector output rose 4.4% in 2005 after rising by 5.5% last year. London has strengthened its position as a financial hub for Russia, Eastern Europe and Asia as well as Western Europe, while M&A activity has risen by 32% after a rise of 64% last year, though this is still less than a third of the peak level in 2000.
A rising equity market has also driven activity in this sector while activity in the derivatives sector will have more than doubled since 2001.