UK financial sector feels pain of credit crisis

The UK financial industry will shed more jobs in the months ahead as the economic crisis deepens, and its effects have already cut bonuses and salaries sharply.

According to research by the Confederation of British Industry (CBI) and PricewaterhouseCoopers, a net 25% of UK financial companies cut jobs in the three months from early December 2007 to early March - that is, 25% more companies cut jobs than added them - and a net 33% expect to cut jobs in the quarter ahead. This translates to 9,000 jobs lost already and another 10-11,000 to go by June, the CBI said.

Ninety percent of companies expect the credit squeeze to continue at least until the last quarter of the year, the survey found. Ian McCafferty, the CBI's chief economic adviser, said: "While liquidity injections and interest rate cuts by the Bank of England will help shore up the system, neither will solve the fundamental problem of restoring trust within the markets. Credit markets are unlikely to return to anything like normality for some time to come. And even when they do, we will not see a return to the very favourable lending conditions that existed before August. We can expect further tough times in the financial sector, as this feeds through into the wider economy, and will inevitably be felt through slower economic growth this year and next."

Sentiment was gloomiest among insurance brokers and life insurers, the CBI said, with both rating the chance of further deterioration "high"; fund managers, on the other hand, remain optimistic despite the recent high-profile losses by several funds, and are still recruiting, the survey found.

Meanwhile, a survey by the headhunter Napier Scott found that City pay and bonuses had fallen an average of 40% in 2007, and New York had seen an average 60% cut in the same period. The biggest falls were in the debt and credit businesses, leaving Asian credit traders now the best-paid.