London will lose around 27,000 financial jobs this year due to the euro zone debt crisis and economic stagnation in Britain as well as the prospect of more financial regulation, an economic think-tank said on Thursday.
The Centre for Economics and Business Research (CEBR) slashed its estimates for 2011 employment levels in the city to around 288,000 -- a level not seen since 1998 and well below the peak of 354,000 in 2007.
In April, CEBR predicted 2,000 jobs would be created in 2011 and 3,000 next year but it now sees stagnation in 2012.
The euro zone debt crisis, which started more than two years ago in Athens, shows no signs of abating. European leaders are scrambling to solve it, and as they wrangle, the euro zone now looks on the precipice of another recession.
Market activity and confidence have taken a beating since the crisis began and many investment banks in London are cutting costs to stay profitable while the prospect of regulation and higher taxes are forcing them to look further afield.
These latest estimates demonstrate how London's role as a key centre in global finance is increasingly at risk, said Rob Harbron, an economist at CEBR.
With the possibility of further taxation and higher regulation constraining the relative desirability of London as an important financial centre, the gap between the rising Far Eastern centres such as Hong Kong and Singapore continues to narrow.
Investment banks globally have been slashing jobs and streamlining operations to cope with a downturn in financial markets and an uncertain economic outlook, especially in debt-ridden Europe.
On Wednesday, Japan's Nomura Holdings said it was planning cost-cutting that would likely have the biggest impact on its loss-making European operations.
Deutsche Bank's third-quarter pre-tax profit beat forecasts but the bank warned that its investment banking arm was facing its toughest conditions since 2008 and that could lead to more job losses.
CEBR's report said tighter financial regulations suggested by a government report would add to banking sector woes and take a toll on job creation.
Hiring is expected to flatline over the next year or two years before gradually picking up in 2014, mirroring the gloomy predictions for Britain's economy and official labour market data showing rising unemployment.
Britain's economy faces a one-in-three chance of a second recession in the next 12 months and at best will see many quarters of feeble economic growth, according to a Reuters poll published this month.
(Reporting by Anooja Debnath; editing by Stephen Nisbet)