CIOs could be placed under pressure to cut their head count and outsource, according to the latest forecast from the Centre for Economics and Business Research (CEBR). The research organisation is predicting a City slow down with higher redundancies than the dot-com crash.

CEBR predicts there will be 20,000 jobs cut in the next two years as a result of credit crunch that has hit the financial sector since the beginning of the year. Recent cuts at Citi and Royal Bank of Scotland (RBS) are “the tip of the iceberg – as the substantially weaker outlook for the City over the next two years will necessitate further lay offs” said Dominic Walley, senior economist at CEBR.

CEBR predicts the financial sector jobs will drop by 11,000 this year and lose a further 8,200 next year. As a result jobs in industries reliant on the financial sector are also likely to be hit.

“We expect the credit crunch to have a greater impact on the City than the dot-com crash when 15,300 jobs were lost,” said Walley.

CEBR believes the sectors to take the full brunt of the crunch will be felt by the corporate finance, investment banking and derivatives. These have been hit by asset write-downs, weak equity markets and the credit crunch. “There is little sign of light at the end of the tunnel for the City,” Walley said.

Walley told that he has already seen recruitment freezes and cost cutting. "There is just not the money available to maintain projects or start new investments programmes, there is a widespread shakeout of costs." CIOs in financial institutions are being told to cut costs drastically he said.

Today’s announcement from CEBR is a revision of findings from October 2007, when it predicted jobs would only decline by 6500 jobs this year. “Unlike 2000 and 2001 other areas of the economy such as the housing market and consumer spending will not be as supportive of growth during this crisis,” the group said. Walley said the “magnitude” of the credit crunch “has forced us to revise our forecast”.

Merger and acquisition activity is also likely to drop according to CEBR, dropping by 26 per cent and the London Stock Exchange will see its trading volume drop by 36 per cent it predicts.

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