The latest quarterly survey from the Confederation of British Industry and PricewaterhouseCoopers shows that the number employed in financial services fell by 41%, the heaviest rate of decline since June 1993.
The CBI and PwC expect a similar fall in the number employed in the sector over the next three months of 38%.
Staff turnover dropped for the fourth consecutive quarter, reflecting an overall nervousness of switching jobs and a shortage of vacancies.
Two-thirds of businesses thought the UK has become a less competitive financial services centre as a result of the credit crunch.
Ian McCafferty, chief economic adviser to the CBI, says: “Sharp drops in revenues and profitability are causing continued suffering, while business volumes remain weak. Firms are making heavy cuts to staff numbers and investment plans to make savings and reflect weak demand.”
He adds: “Over the past six months any hopes of the pain easing off have been disappointed, but conditions in the sector are not uniformly bad, as many general insurers fared quite well.”
Andrew Kail, UK insurance leader at PwC, says: “General insurers feel even more optimistic than they did in December, and are more confident than at any point since 2005.
“Companies are expecting to grow across personal and commercial lines and new customers are seen as the most promising source of growth.”