Citigroup shed hundreds of its London staff yesterday as fears intensified that Britain and the City are heading for recession.

The Centre for Economics and Business Research (CEBR), an independent think-tank, said that it now expected about 8,000 City job losses this year, a 20 per cent increase on its last forecast, in October.

The cuts come as markets continue to digest the US Federal Reserve’s emergency cut in American interest rates on Tuesday.

The FTSE 100 index of leading UK shares fell 130.8 to 5,609.3 yesterday, all but wiping out gains made immediately after the 75 basis point cut to US rates on Tuesday. However, in New York, the Dow Jones industrial average made a dramatic turnaround from heavy early losses to trade up nearly 300 points at 12,270.17.

George Soros, the billionaire fund manager who predicted sterling’s devaluation in 1992, told the BBC yesterday that negative economic growth was unavoidable in the US and the UK. His comments were supported by Sir Howard Davies, the director of the London School of Economics and former Deputy Governor of the Bank of England. Sir Howard said: “The chances of avoiding recession here are pretty slight.”

Citigroup, headed in Europe by Bill Mills, began a 4,200 global redundancy programme yesterday, the same day that some of its 11,000 Canary Wharf-based staff were informed of their latest annual bonus payments — awards that have been blunted by the group’s sub-prime-related losses.

Fixed-income traders at the world’s largest bank will bear the brunt of the 150 job cuts expected from Citigroup’s London investment banking team, sources said. Cuts are also due in equity research, wealth management and consumer banking, taking its UK cull to between 300 and 400, sources said.

The Citigroup retrenchment means that investment banks in London are thought to have cut close to 1,000 jobs in recent weeks. City recruiters expect Bank of America, another big London employer reeling from multibillion-dollar writedowns relating to the credit crunch, to start announcing job cuts shortly. The bank was due to announce its annual bonuses this week but a final decision has been delayed to next Monday, sources said.

Accounting and law firms are expected to freeze hiring of juniors as fallout from the bank sector ripples out.

Minutes of the latest Bank of England interest-rate setting committee meeting did little to dispel the gloom. They revealed that only one of its nine members voted to cut UK rates from the current 5.5 per cent. However, the Office for National Statistics released data showing that the economy continued to grow by a robust 0.6 per cent in the last three months of 2007, down from 0.7 per cent in the third quarter but above forecasts for 0.5 per cent.

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