The City was last night facing up to the prospect of thousands more job cuts after Barclays told staff that it would eliminate more than 2,100 positions in its global investment banking, wealth and money management units (see Commentary, facing page).

A day after the London staff of Merrill Lynch and its new owner Bank of America were told that about 1,900 jobs would go — nearly a third of their combined strength — Barclays began a consultation period with staff to ensure that it is “appropriately sized, given the current market conditions”.

Barclays declined to say how many people would lose their jobs as a result of the cost-cutting exercise, although it is understood that 1,300 out of 20,000 positions will be lost in Barclays Capital, the investment banking business run by Bob Diamond.

A further 500 jobs are expected to be eliminated in Barclays Wealth, the wealth management unit, with about 330 more staff to be cut from Barclays Global Investors, the corporate money management division.

Many of the job cuts will fall in the UK, but positions will be lost across the world and both front and back office functions will be affected.

The latest job cuts at Barclays come after 3,000 positions were shed last year as part of the group’s acquisition of Lehman Brothers’ US investment banking business, which followed the collapse of the US bank under the weight of huge investment losses. Former Lehman staff are not expected to be disproportionately hit in this round of redundancies.

Barclays confined its comment on possible redundancies to a single statement, which read: “We can confirm that we have begun a consultation process to reduce headcount across some parts of IBIM to ensure that we are appropriately sized given the market conditions. We will continue to hire selectively across those parts of the business that are growing.”

The job cuts came just hours after Sir Nigel Rudd unexpectedly announced that he would be stepping down as deputy chairman after 13 years at the bank. He is due to join Invensys, the technology group, as chairman in July.

Shares in Barclays fell by 18.70p, or 10 per cent, to 165.90p on concerns about the outlook for the banking sector but the move did not reflect the job cuts, which Barclays confirmed after the market closed.

David Kern, chief economist at the British Chambers of Commerce, said: “Widespread redundancies are an unavoidable consequence of a downturn of this magnitude. In terms of human tragedy, it’s a very sad story and unemployment is going to keep on rising into the first half of next year.”

Mr Kern believes that unemployment in Britain, which is about 1.9 million, will rise to about 3 million and start to fall in the second half of 2010. “In terms of output, we have just seen the worst, with things getting as bad as they’re going to get this quarter and in the fourth quarter of 2008. But there is a lag while declining output feeds into growing unemployment, so unemployment will continue to rise,” Mr Kern added.

Staff at financial services groups, suffering from huge investment losses and a dearth of financing are expected to be hit particularly hard.

Citigroup, Commerzbank, Nomura, Credit Suisse and Goldman Sachs are among the banks that have made, or plan to make, significant job cuts in London.

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