CITY workers are bracing themselves for jobs cuts as economists warn of a possible recession.

The Centre for Economic and Business Research, an independent think-tank, last week upped its forecast of City job losses to 10,000 – a rise of 1,500 from its previous update in January.

City jitters were exacerbated with the fall of Bear Stearns, the fifth-largest American investment bank, last week. About a third of its 1,400 London staff are expected to lose their jobs.

Simon Ward, chief economist at New Star, a fund manager, said the risk of recession stood at 25%, compared with just 10% in the last three months of 2007.

“If you look at the hard data, the numbers have been holding up well, both in the UK and globally. However, the credit market is getting worse.”

No-one is yet predicting things will get as bad as the recession of the early 1990s when, from the second quarter of 1990 to the second quarter of 1992, house prices fell by 16% in real terms, and 40,000 jobs were lost.

Nevertheless, financial advisers say it is worth recession-proofing your portfolio for hard times.

Get clever with your bonus

While City bonuses are 16% lower this year at £7.4 billion, top staff have still pocketed seven-figure sums. The money can be used to pay off debt which would provide more flexibility when times get tough.

You could, for example, pay off some of your mortgage to lower monthly outgoings although most lenders will charge a fee of 3%-5% for overpayments of more than 10% of the loan.

You could place the money into a savings account and go for an offset mortgage which would reduce the sum used by your lender to calculate interest. If you had a £200,000 mortgage, for example, and placed £100,000 into a linked account, you would only be charged interest on £100,000.

First Direct has an offset mortgage with a rate of 4.75%. If you put your £100,000 bonus into a linked savings or current account, you would save £4,750 a year, or £396 a month.

You can either reduce your monthly payments or continue paying the same amount and reduce the debt quicker, which would give you a fund to call on in emergencies.

Think carefully before unlocking your pension

Following rule changes in 2006, you can now release money from your pension while continuing to work.

Anyone aged 50 or over – rising to 55 in 2010 – is allowed to withdraw up to 25% of their pension as a tax-free lump sum without having to retire or draw an income from the remainder of the fund. The money could be used to pay off some, or even all, of your mortgage.

However, advisers urge caution. Tom McPhail at Hargreaves Lansdown said: “Remember, pensions are designed to provide an income in retirement, so make sure you can really afford to unlock this cash.”

Don’t fall for the insurance hard sell

Banks are busily pushing protection insurance which, as the name suggests, would cover some of your income if you lost your job. However, the cover can be costly and often has a raft of exclusions. Payprotect, for example, offers a policy costing £44.40 a month to cover you for £1,000 of your salary for 12 months. To cover yourself for a maximum of £1,500 a month would cost around £66.60 a month.

However, the policy stipulates a 180-day exclusion, from when you take out the policy, where you cannot make a claim. You will also be refused a payout if you were not in continuous work for at least six months prior to your employment ending.

If you still want to take out insurance, brokers said that a better option is i:protect which has a 60-day exclusion period and charges far less. To cover £1,000 of your income, you would need to pay £26.40 a month.

You should also bear in mind that with most policies, you will not be paid for the first 30 days, so you need to make sure you can cover yourself over this period.

And, don’t forget, you might also be able to find another job within this 30-day period.

Alternatively, you could take out payment-protection insurance, which covers your outgoings rather than a proportion of your income. However, PPI has been subject to an investigation by the Financial Services Authority, the City regulator, following complaints that the policies were mis-sold and people were unable to claim because of caveats in the policies.

The cover also has one of the poorest payout records in the industry: only 20% compared with 80% for car insurance, for example. If you do want to take out the cover, however, you can expect to pay between £4 and £6 to protect each £100 of monthly mortgage repayment. So someone with a £200,000 repayment mortgage at 5.6% would pay between £50 and £75 a month on top of their mortgage.

Independent firms such as British Insurance are up to 50% cheaper, charging around £25 a month for the above mortgage if you are 35 years old.

Shift your debts

Pay off as much debt as you can immediately. You can either use a credit card with a 0% rate of interest or go for a loan.

The credit card option would mean you pay less for the initial period, although in the long run you will be paying more.

If you put £10,000 on a Virgin Money credit card, for example, which has a 0% deal lasting 15 months with a 3% balance transfer fee, and paid the minimum 3% (£300) a month, you would pay off your bill in three years and one month.

The total interest would be £843 and you would also need to pay a balance-transfer fee of £298. All in all your total repayments would be £11,141.

With the loan option you would pay a higher amount each month. Tesco personal finance offers a loan at a rate of 6.8% on £10,000. Over three years, you would pay £307 a month. Over 36 months, your total cost would be £11,056 – £85 less than with the Virgin credit card.

b>Protect against inflation and earn 9%

Although the Bank of England has predicted that inflation will come down from 2.5% to 2% in the next 12 months, analysts including Philip Wood of Price Waterhouse Coopers said there was still a risk it could take off again if the Bank was forced to slash rates to boost the economy.

You can take advantage of rising inflation through index-linked savings products.

National Savings and Investments, for example, has two index-linked bonds of three and five years. They pay a rate of 1.35% plus the retail prices index rate of inflation, which stands at 4.1%, giving a total rate of interest paid of 5.45%.

As the money earned is tax free, the total for a higher-rate taxpayer is equivalent to 9.08%. You can put in a minimum of £100 and a maximum of £15,000.

Reduce household bills

If you have never switched energy suppliers you will be paying as much as 25% more than you need to – about £330.

You also get a discount if you pay by direct debit and if you sign up to an online tariff. One of the best deals is Npower’s at £795 a year on average.

The best deals for home phone, TV and broadband come as “bundles”. Steve Weller of comparison site Uswitch likes Sky’s £19 a month deal with up to 2Mb broadband, around 60 TV channels and free evening and weekend UK landline calls. You pay £10.50 a month BT line rental.

Bag a great savings deal

It is always worth saving at least three months of your salary to cushion against unemployment, and rates are better than they have been for years. If you want easy access, the ICICI HiSave account pays 6.16%. Birmingham Midshires offers 6.35% on its Direct Isa.

If you are worried about the security of bank deposits after Northern Rock, spread your money around, placing no more than £35,000 in each account – the maximum covered by the Financial Services Compensation Scheme.

Halifax, Bank of Scotland, Birmingham Midshires, Intelligent Finance, Saga and the AA are all part of HBOS.

So if you held £35,000 in Halifax and £35,000 with Bank of Scotland, you would only be covered for £35,000.

BANKER INSURES AGAINST CITY JOBS CULL

TOM OAKLEY, who works in asset management at a City investment bank, said he is concerned about economic instability and the security of his job.

Oakley, 29, who lives at Elephant and Castle, south London, said: ‘These are uncertain times, so I’ve decided to take out an insurance policy to cover my mortgage payments in case I lose my job.’

He said he had applied for a mortgage protection policy from Abbey, his mortgage provider, which would cover him for up to 12 months.

It will cost him £4.31 to cover each £100 of his monthly repayments.

HOW BAD WAS IT IN THE PAST?

— Spring 1973 to summer 1975

— House prices rose by about 19% in nominal terms but fell by 21% in real terms after adjusting for rampant inflation.

— The FTSE All Share fell in nominal terms by 29% and by 53% adjusted for inflation. Spring 1979 to spring 1981

— House prices rose by in nominal terms about 29% but fell 5% adjusted for inflation.

— The FTSE All Share index rose by 25% in nominal terms but fell by 8% in real terms. Spring 1990 to spring 1992

— House prices fell 6% according to Halifax and 11% according to Nationwide. From the peak in 1989 to the trough in autumn 1994, prices fell 19%, said Nationwide.

— The All Share index rose 13% in nominal terms, or just 2% after inflation.

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