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10,000 more City jobs to go

30/06/2008

As many as 10,000 more jobs could go in the City as the economic slowdown and credit crunch bite financial services.

After between 10,000 and 11,000 jobs in the financial services sector were lost in the last quarter, according to a report from the CBI and accountants PricewaterhouseCoopers (PwC), further job losses are still expected as profitability was down at a record pace and business volumes fell at the fastest rate in 17 years.

Ian McCafferty, CBI chief economic adviser, said: "The impact of the credit crunch on financial services has deepened over the last three months, and conditions look set to remain difficult for some time yet.

"Although credit markets have been somewhat calmer of late, the interbank lending system is still looking gummed up, and spreads have widened more than at any time in the past eighteen years."

Of the firms polled 91 per cent thought it would take six months for market conditions to return to normal.

In the three months of June, 20 per cent of firms in the sector said business volumes were up, but 55 per cent had seen a fall.

The balance of -35 per cent seeing business contraction is the lowest level since 1991.

"Profitability in the sector is being badly hit, so firms are trying hard to trim costs by planning to cut back on training and marketing for the first time in a number of years," said Mr McCafferty.

"The problems of the financial sector will echo throughout the wider economy and will drag economic growth down this year and next."

The research also showed while banks have been increasing the spread between borrowing and lending costs to a record level, profitability was flagging as the volume of business was falling and the number of defaulting loans rose.

John Hitchins, PwC UK banking leader, said: "Banks have made their gloomiest profitability prediction since 1994 and sentiment in the sector has fallen the most sharply since 1998.

"Volumes of business are declining faster than expected and economic worries are broadening from the retail arena to include the commercial sector.

"Asset writedowns continue to impact profitability."

The job losses, however, will not be limited to the City and Canary Wharf.

Research last week from Oxford Economics showed the credit crunch would be causing job cuts as far afield as Chester, Bournemouth and Calderdale.