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 in 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 sub-prime mortgage market in the United States climbed to $319 billion (£164 billion). Experian is predicting that the British economy will slow considerably in the next few years, from 3 per cent growth 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 since 1992. William Thomson, the director of international economics for 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.”

Oil is the key to world recovery

The shock of $140 oil has created inflationary and deflationary pressures that threaten world economy and policy tools

• Former President Bush energy adviser says oil is running out

Background

• Oil is the key to world recovery

• Banks may need to pump billions into scheme

• UK economic growth weakest for three years

Related Internet Links

• Full credit crunch coverage

Background

• Happy days are over for UK households

• Banks restrict mortgages by brokers

• Credit crunch halves lending at Nationwide

• JPMorgan to cut Bear Stearns jobs

• George Soros: Crunch will bite deeper in UK

Related Links

• City firms hold nerve in the face of crisis

• Bank predicts crisis will hit UK hard

One positive aspect of the predicted economic slowdown will be the closing of the North-South divide, according to Experian. London's abrupt economic slowdown will cause the gap between the North and South to 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 the consumer slowdown take their toll.

Slower growth and higher credit costs will also exacerbate a downturn in the housing market, Experian predicts. Mortgage approvals in the UK 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 British 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 would fall 10 per cent by mid-2010, the report said. Values in the South East and in eastern England will slide 5 per cent.

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.”

Explore Economics

• Autumn Budget 2007

• Budget 2008

• World Economic Forum

• The Times MPC

Times Recommends

• B&B shareholders forced into funding rescue
• John Lewis department store sales plunge 8.3%
• Families turn to credit to cover mortgage bills