The sharp rise in City job cuts has left London heading for a recession, according to a think tank.

The Centre for Economics and Business Research (CEBR) estimated that London's economic growth has fallen from 0.7% in August to 0.2% in the current forecast.

We believe it is more realistic to describe London as 'on the verge of a recession'

CEBR

The CEBR said a major cause of the slowdown was the large number of redundancies in the financial world, which it estimates will reach 25,000 in 2003.

This, the group suggests, will mean a "sluggish recovery" in 2003 for London's economy and a significant rise in unemployment.

Already a recession?

The CEBR suggested London's economy had in fact been in decline for the past two consecutive periods of three months, or 'quarters'.

This officially constitutes a recession, but the research group said: "We believe it is more realistic to describe London as 'on the verge of a recession' based on the annual data."

Earlier this week, a newspaper interview with Chancellor Gordon Brown prompted speculation that he may be forced to cut economic forecasts in his pre-Budget review on Wednesday.

City companies have cut thousands of jobs

CEBR research suggested that fewer jobs had been cut in 2001 than originally thought, but that companies had made up for this in 2002.

"The estimated decline in city jobs in 2002 and 2003 has been revised up from 8,000 to 25,000."

Rising taxes

The CEBR also examined public spending and suggested this will mean significant tax rises for Londoners.

It predicts council tax will jump by 18% in 2003 and contribute to a further cut in consumer spending.

The latter, it estimates, will slow sharply from 3.8% in 2001 to just 0.5% by 2004.

House prices will not be immune from the fall with prices set to fall or stay flat for the next three years, according to the think tank.