A major slump in the number of people working in the UK banking and insurance fields could be on the way.

In its quarterly report, the Confederation of British Industry expects employment levels will drop in the financial services sector in the next three months.

Companies reported steady levels of employment in the previous three months, but are convinced cuts will have to be made.

In contrast, building societies report rising employment and expect that to continue over the next three months.

Financial service companies most pessimistic since 1995

Life insurance companies are also expecting to increase their numbers of employees, despite already having recruited strongly over the last three months.

But the latest survey found, as a whole, financial services companies were less optimistic about their future than at any point since September 1995.

One in four are more pessimistic about their business outlook than they were in the last survey.

Increases in the volume of business reported by companies dropped to the slowest rate since last March, with general insurance companies and finance houses noting the worst falls.

Building societies run against sector trend

At the other end of the scale, building societies, securities traders and insurance brokers claim the largest increases in business.

David Sayer, senior banking consulting partner at Coopers & Lybrand, which helped compile the report, says banks are concerned about the sustainability of UK economic growth and interest rates rises.

They are also worried about uncertainty in world stock markets.

However, he warns such fears are not backed by the actual levels of business reported by the banks.

"I am worried that these fears could become a self-fulfilling prophecy. The banks should realise that in fact their overall profits are rising strongly.

"They should look at the statistics and see there is no evidence for their pessimism."

Investment in IT is expected to stay buoyant but not at the same levels as in the last survey.
 

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