Demand for central office lettings plummets

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Property consultant Atisreal said lettings in central London in the second quarter were down 49% on the same period last year.

The City was hit hard as the financial sector continues to be spooked by the credit crunch. Vacancy rates rose from 6.2% in the first quarter to 6.7%, with firms slashing jobs and shelving expansion.

The West End fared better because of the shortage of supply. Vacancy rates are still just 3.4% and rent tops £120 a sq ft.

Meanwhile, the London Chamber of Commerce and Industry said more than eight out of 10 London businesses expect the economy to slow sharply in the next 12 months. That was almost double the figure of a year ago.

"Business confidence continues to fall in London, especially among retail and manufacturers," said Dr Helen Hill, director of policy at the chamber. "It is especially concerning that business services firms are pessimistic, given the contribution this sector makes to London's economy."

She urged the Bank of England not to raise interest rates this week or any time soon despite the threat to the economy of rising inflation.