The survey, conducted on 118 companies between 24 February and 12 March 2003, revealed two consecutive quarters of declining business in the industry for the first time since 1993. The volume of business has gone down for 40% of the businesses questioned in the third quarter.

And more than 40% of companies in the industry have cut their staff, whilst 13% took on employees, creating a balance of -30%, which indicates the biggest job cull in financial services since September 1996.

The highest amount of job cuts took place amongst general insurers and in life insurance companies whilst building societies and finance houses took on staff, according to the survey by the Confederation of British Industry and PricewaterhouseCoopers.

Business confidence has also fallen in the industry. More than half of companies were less optimistic than three months ago, showing the most rapid decline in business confidence since 1998. And companies see little sign of improvement in the following months, with 93% or respondents saying they see the biggest constraint to business being a lack of demand.

John Hitchins, UK banking leader at PwC, said: 'A second quarter of declining profitability has triggered a sharp fall in business confidence, made worse by uncertainties about the future outlook. The extent of job cutting suggests that companies believe an upturn is not imminent.'