City 'to lose 6,500 jobs' in 2008

Markets have been hit by turmoil recently

Recent market turmoil could spark 6,500 job losses and a drop in bonuses in the City of London, predicts the Centre for Economics and Business Research (CEBR).

Bonuses could fall by 16% to a total of £7.4bn ($15bn) in 2007 from a record £8.8bn last year, the think tank said.

But the figure for job cuts was significantly lower than the 11,000 jobs created in the City this year.

The CEBR added it expected investment banks and hedge funds to be hardest hit by job losses and cutbacks.

Most cuts are expected in areas like private equity - which rely on firms being able to borrow large amounts - as these sectors have been brought to a virtual standstill by the global credit crunch.

Credit problems have made banks much more reluctant to lend the money needed to make big takeovers.

'Breakneck speed'

The CEBR predicts that investment banking will see the most cuts, losing 2,300 positions.

"What we are likely to see as we enter 2008 is a reduction of almost one for every two jobs added this year," said Sarah Bloomfield, one of the report's authors.

"But although this equates to a reduction in total jobs of only 2%, it will feel worse than it actually is because the City has become used to adding jobs at breakneck speed."

The report says 11,000 jobs were created in 2007, considerably more than the 4,000 originally forecast.

This job creation figure was revised upwards "because of extraordinary growth of the City up to the summer" taking jobs to a record high of 349,100 in 2007, said the CEBR.

But the centre suggested the job losses would be temporary, lasting until 2009.

"However jobs will fail to return to record-settling levels until 2010 when the likes of China will return to the positive side of their economic cycle," it said.

The CEBR also added that while bonuses would fall in the short term, they would recover in 2009 and to hit £10.9bn in 2011.