Job losses in the banking and insurance sector could reach as much as 40,000 over the next three years as the worldwide credit crunch takes hold on Britain.

According to Experian, the credit-checking company, London's financial-services industry will bear the brunt of the worst cuts with businesses expected to shed 19,000 jobs, across the City. The Square Mile itself could see as many as 10,000 jobs lost over the period.

Banks and securities groups worldwide have cut about 65,000 jobs as losses and writedowns stemming from the collapse of the US sub-prime mortgage market climbed to $319 billion.

Experian is predicting that the British economy will slow considerably in the next few years, from 3 per cent in 2007 to 1.8 per cent in 2008 and 1.5 per cent in 2009.

The contraction of the economy will lead to the first falls in employment levels seen since 1992. William Thomson, the director of international economics at Experian, said: "Financial-services jobs are particularly vulnerable as the fallout from the credit crunch continues. The slowdown will bring the impressive run of job creation to a halt.''

One positive aspect of the predicted economic slowdown, will be the closing of the North/South divide

London's abrupt economic slowdown will see the gap between the North and South narrow, for the first time since 2002. The South has been growing 1 per cent a year faster than the North but this will change over the next couple of years as the credit crisis and consumer slowdown take their toll, especially on financial and business services.

Slower growth and higher credit costs will also exacerbate a downturn in the housing market. UK mortgage approvals fell to the lowest level in at least nine years in March as British banks withdrew some of their best home-loan offers.

Experian said that UK house prices would fall by 7.6 per cent over the next two years. Prices in the West Midlands and the South West of England will fall 10 per cent by the middle of 2010, the report said. Values in South Eastern and Eastern England will slide 5 per cent.

"The largest declines in house prices are expected to be in the West Midlands and the South West, with values falling by 10 per cent by mid-2010," Mr Thomson said.

"Winners and losers in the housing market do not fit a strict north-south pattern. Unlike the other regions in the south, prices in Greater London are expected to hold up. Relative to earnings, prices are less inflated in the capital than the rest of the south and housing shortages are severe. However, the capital is vulnerable to the risks of more widespread job losses and more restrictive credit conditions," Mr Thomson said.

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