Thousands of jobs are set to be lost in Britain's battered financial industries as their business levels, profitability and confidence plunge at the fastest pace in almost two decades, since the depths of the last recession, the CBI says today.

The full scale of the mounting toll of the financial sector from the escalating credit crisis is laid bare by grim findings in the CBI's quarterly survey of its conditions, carried out with PricewaterhouseCoopers and covering leading banks, building societies, insurers, fund managers and securities houses.

The quantity of business being done by financial companies slumped over the past three months, falling for a fourth consecutive quarter and more sharply than at any other time since the survey began in December 1989, it reports. Only 10 per cent of financial businesses reported that their turnover had risen and 61 per cent said that it had dropped.

Profitability also fell drastically, and at a record rate, with half of financial groups reporting a decline and rising expectations of worse to come.

The findings are based on results compiled even before the onset of the present financial turmoil sparked by the collapse of Lehman Brothers, the rescue takeover of Merrill Lynch and Washington's plan for a $700billion (£380billion) bailout of US banks.

With business and earnings under intense pressure, financial industries' confidence was already wilting before the upheavals of the past few weeks. The CBI's overall measure of sentiment for prospects in the sector tumbled again, with a net 59 per cent of firms reporting that they were more pessimistic than three months ago.

“One year after the credit crunch first took hold, business volumes and profitability in the financial sector have taken their hardest hammering yet,” John Cridland, deputy director-general of the CBI, said. “Firms have become more fearful about the extent and length of the credit crunch and they are now looking to cut more jobs and scale back investment.”

The CBI expects that 12,000 or more jobs will be cut in the financial industries over the next quarter. Official figures show that 8,000 positions were cut in the sector in the three months to the end of June and a net 44 per cent of financial businesses questioned by the CBI expect to cut jobs over the next three months, up from 19percent in the previous report.

“The survey paints an increasingly bleak picture of the sector, but the dramatic turbulence across the world of finance over the past fortnight will only have depressed market confidence even further,” Mr Cridland said. “Difficulties in this crucial sector will have huge implications for the rest of the UK economy.”

Among the sectors hit hardest, banking groups' business with their domestic British customer base slid to the weakest levels since December 1991, while their profitability also came under growing strain. Building societies' profitability fell at a record pace. In the securities trading sector, expected profitability has fallen to its lowest since the emerging-markets crisis of 1998.

The CBI stepped up pressure on the Bank of England to act to shore up the economy soon. “We think the next interest rate changes should be down,” Mr Cridland said. “We would hope that it could be this side of Christmas.”

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