Profitability levels are falling at record rate

The joint survey between the Confederation of British Industry and PricewaterhouseCoopers also revealed that a staggering 99 per cent of firms think that it will take more than six months for “normal” market conditions to return.

In addition, the value of fee, commission and premium incomes fell in the last three months, as did income from net interest, investment or trading.

John Cridland, deputy director general for the Confederation of Business Industry, said: “One year after the credit crunch first took hold, business volumes and profitability in the financial sector have taken their hardest hammering yet.

“The survey paints an increasingly bleak picture of the sector, but the dramatic turbulence across the world of finance over the past fortnight, and the renewed paralysis in interbank markets, will only have depressed market confidence even further.

“Difficulties in this crucial sector will have huge implications for the rest of the UK economy.”

Business sentiment also fell sharply again according to the survey, as a balance of 59 per cent – out of 100 respondents – said they are less optimistic about the overall business situation in the financial services sector than they were in June.

The volume of business shrank across all customer bases, but was most marked with financial institutions and private individuals, where further contractions are expected over the coming three months.

Numbers employed in the sector also fell by 16 per cent, but a significantly bigger reduction is expected over the three months ahead, with a fall of 44 per cent predicted.