Oct. 8 (Bloomberg) -- London banks and investment companies may cut jobs next year and trim bonuses by 16 percent as U.S. subprime-mortgage losses spill over into the U.K. economy, according to the Centre for Economic and Business Research Ltd.

Next year's estimated losses of 6,500 banking and fund- management jobs could be the most severe since 2000 as companies brace for a slowdown in U.S. and Chinese economic growth, according to a report published today by the CEBR. Firms added 11,000 employees this year, bringing the total to about 349,000, the London-based economics consulting group said.

``The last big decline was after the dot-com crash when 20,000 jobs were lost,'' Jonathan Said, a senior economist at CEBR, said in an interview. ``We only expect 2,000 or so cuts in the fourth quarter. Most of the cuts will come next year.''

The value of bonus payouts may decline to 7.4 billion pounds ($15 billion), the report said. The CEBR was estimating bonuses of as much as 7.5 billion pounds as recently as last month.

Economic growth in London may slow next year to 1.4 percent from 3.6 percent, and the pace of house price increases may fall to 1.6 percent from 16 percent, according to the CEBR. Bonuses may not surpass the 8.8 billion pounds paid out at the start of this year until 2010.

Rising U.S. home-loan defaults probably will ``feed through to weaker activity in areas such as financial and business service in London,'' the CEBR said. U.S. investment-banking bonuses may drop by as much as 5 percent, the Options Group, a New York-based firm that has tracked pay and hiring trends on Wall Street for more than a decade, estimated in August.

U.S. Slowdown

The CEBR, set up by Douglas McWilliams, a former economic adviser to the Confederation of British Industry, provides analysis on markets, financial companies and the government. It warned of a slowdown in the U.S. economy in September last year.

U.S. employment accelerated in September, easing concern the economy is headed toward a recession. Payrolls grew 110,000 after an 89,000 increase in August, the U.S. Labor Department said on Oct. 5.

``Although the numbers are better, we still have a view that the U.S. is slowing down,'' Said said. CEBR's forecast of a 2 percent growth rate in the U.S. economy ``hasn't really changed,'' he said.

New York-based Merrill Lynch & Co. and Zurich-based UBS AG posted third-quarter losses last week as they marked down the value of securities backed by loans to home buyers with poor credit histories. UBS, Switzerland's biggest bank, also announced plans to cut 1,500 jobs. New York-based Citigroup Inc., the biggest U.S. bank, said profit fell 60 percent.

Housing Market Slows

Investors shunned all but the safest investments during the third quarter, prompting a credit-market freeze. The casualties included Newcastle, England-based Northern Rock Plc, which sought emergency funding from the Bank of England after a surge in borrowing costs hampered its ability to issue new mortgages.

A decrease in bonuses would have a knock-on effect on the ``higher end'' of London's housing market, where prices have surged in the past year, the CEBR reported last month. Bonuses have fueled London's property boom, especially in affluent areas.

Prices in Kensington and Chelsea, populated by bankers, soccer stars and actors such as Elizabeth Hurley, rose 60 percent in the past year, pushing the average cost of a home to more than 1 million pounds.

To contact the reporter on this story: Sebastian Boyd in London on sboyd9@bloomberg.net

Last Updated: October 8, 2007 06:51 EDT