The Centre for Economics and Business Research (CEBR) says London's financial centre will suffer from the growth of the internet as well as cut-backs brought about by takeovers and mergers.

The report says the rise of online financial transactions means businesses no longer need to be located in London's Square Mile financial district.

More companies are likely to base themselves in the provinces, where living costs are cheaper, the CEPR said.

Down, then back up

The report also points to recent takeovers, such as the Lloyds TSB acquisition of Scottish Widows and the proposed takeover of NatWest by the Bank of Scotland, which it said could result in major job losses, particularly in London and the south-east of England.

Unions fear that up to 30,000 jobs could go across the UK if the NatWest takeover goes ahead.

Redundancies almost inevitably follow mergers as firms cut back on jobs and business areas which are duplicated.

Employment in the City could also shrink as the need for expert investors declines with the rise of passive funds, where investments automatically track indicators such as the FTSE-100 or all-share indices.

But the CEBR said that while employment would fall in the next two years, jobs growth could increase sharply from 2002.