City Job Losses Worst Since Dot-com Crash

London's financial services sector faces a loss of 20,000 jobs over the next two years. Cuts by Citigroup and RBS are the tip of the iceberg

The City faces the worst employment downturn since the dotcom crash, with up to 20,000 job losses in the financial services sector in the next two years, according to forecasts to be published this afternoon by the Centre of Economic and Business Research (CEBR).

Up to 11,000 jobs will be shed this year and another 8,200 will go in 2009, particularly from areas most exposed to the credit crisis, such as corporate fin-ance, investment banking and derivatives. Employment levels will not recover until 2012.

The early warning signs—200 job losses at RBS and 2,000 across Citigroup's London and New York operations—are just the tip of the iceberg as paralysis in the financial markets spreads throughout the economy, says the analyst group. Merger and acquisition activity and volumes traded on the London Stock Exchange are also forecast to plummet—by 26 per cent and 36 per cent respectively.

"The breakneck expansion of City jobs since 2002 will come to an end this year," said Richard Snook at the CEBR. "Billions have been lost on asset writedowns, 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 substantial job losses are now inevitable."

Not only do the forecasts raise the spectre of the dotcom crash, which costs 15,300 jobs, but, unlike in the early 2000s, a resilient housing market and bouyant consumer spending will not be there to counteract the slide.

The cracks are already starting to show. There have been 114 profit warnings from UK plc so far this year, the highest level since 2001 and 11 per cent more than last year, says an Ernst & Young survey published today. Retail is the worst-hit sector with 18 warnings this quarter. Although the post-Christmas season is always tough on the high street, the sector is in worse distress than last year as consumers spooked by falling house prices become more wary, and access to cheap credit dries up.

Judging from past experience, the prognosis is not good, says Keith McGregor, a partner at Ernst & Young. "Profit warnings remained above the 100 mark for the second quarter in a row, driven by the deepening impact of the credit crunch and a record number of retail warnings," Mr McGregor said. "The last time UK plc issued more than 100 profit warnings in consecutive quarters it was 2001, at the end of the technology-led boom."

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