Firms will eliminate 28,000 jobs in the City of London this year and 34,000 next year, the CEBR said in a report on Monday, according to Bloomberg news.

The cuts would reduce the number of people employed in the industry to 290,847, the lowest since 1998.

The credit crunch 'has spread through global markets like a virus and threatens to plunge the world into recession,' Mr Richard Snook, the CEBR's senior economist, said in the report. 'We therefore do not expect a quick return to the levels of employment and prosperity that the city saw in 2006 and 2007.'

Banks worldwide are shelving deals and cutting employees as the turmoil in credit markets spreads. European stocks tumbled last week, with the benchmark Dow Jones Stoxx 600 Index posting its worst week on record.

HSBC Holdings, Europe's largest bank by market value, is cutting about 550 UK jobs, and Zurich-based UBS AG said on Oct 1 it would eliminate 2,000 positions in its European investment banking unit.

About half of the city's 15,000 corporate finance jobs will disappear by the end of next year as mergers and acquisitions slow, the report said. Companies have announced US$1.2 trillion (S$1.8 trillion) of takeovers in Europe this year, a 25 per cent drop on the same period in 2007, data compiled by Bloomberg show.

Almost 46 per cent of derivatives-related jobs in London may also go as demand for more complex products wanes, the CEBR said.

'Much of the city's growth in recent years has been built on servicing international markets, developing new financial products and by leveraging returns,' the CEBR said. 'The days of easy credit are seemingly over.'

Almost one in five investment banking jobs will also be lost, the CEBR added.

The legal, professional services, insurance, fund management, securities and equities industries are likely to follow by cutting headcount by up to 20 per cent.

Banks and investment firms have eliminated more than 134,000 jobs globally since the beginning of the credit crisis last year, Bloomberg data show.