As many as 20,000 City jobs will be culled over the next two years as a result of the global credit crunch, according to a report from the centre for economics and business research (CEBR) which warns that the employment downturn will be worse than during the dotcom crash.
The number of financial sector jobs in London will fall by 11,000 in 2008, says CEBR, with a further 8200 roles expected to be shed in 2009.
The number of jobs reliant on the City will fall from 351,000 in 2007 to 334,000 in 2009. The downturn will be so severe that job levels are not expected to recover until 2012.
"We expect the credit crunch to have a greater impact on the City than the dotcom crash when 15,300 jobs were lost. Unlike in 2000 and 2001 other areas of the economy such as the housing market and consumer spending will not be as supportive of growth during this crisis," says the CEBR.
In its October 2007 report, the CEBR forecasted that City jobs would decline by 6500 in 2008, but suggested that job losses would be "short lived" with most sectors seeing job increases in 2009 as the US economy and the financial markets recover.
But Dominic Walley, senior economist, CEBR, says the persistence of the credit crunch and magnitude of its impact on many key markets in the City "has forced us to revise our forecasts".
"There is little sign of light at the end of the tunnel for the City," he says.
The CEBR warns that recent job cuts by Citi and RBS are "likely to be the tip of the iceberg - as the substantially weaker outlook for the City over the next two years will necessitate further lay-offs".
The worst hit sectors will be corporate finance, investment banking and derivatives, which have all been disproportionately affected by the credit crunch, asset write downs and weakness in equity markets.
UK merger and acquisition activity is also likely to fall 26% in 2008 on the previous year, while trading volumes on the London Stock Exchange are expected to fall 36%.
Says Richard Snook, economist, CEBR: "The finance sector is currently engulfed by bad news stories; billions have been lost on asset write-downs, the credit crunch has made it more difficult for banks to secure funds and activity in profitable sectors like mergers and acquisitions has ground to a halt. Combined with the sharp slowdown in the UK and world economy, this means that substantial job losses are now inevitable."