Recession 'to hit capital worse than rest of UK'

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The capital's heavy dependence on the City and Canary Wharf means it is more exposed to the global financial crisis than any other part of Britain, according to the CEBR think tank.

"The economic crisis in London is currently in full swing" said the report's author, CEBR economist Richard Snook. The group also predicts that unemployment will rise to more than 10 per cent and average wages will fall because of bonus cut-backs.

Chancellor Alistair Darling will reveal Treasury figures in his Budget next week showing how bad the Government thinks the recession is likely to be.

The CEBR predicts that London's GDP will shrink by 5.7 per cent this year, compared with about 3.5 per cent nationally. A one per cent fall is forecast for next year, taking the capital's economy to the size it was in 2005 at £180billion.

Recovery will only start in the second half of next year and accelerate as the Olympics approach in 2012. The City "economy" will shrink by 11 per cent this year, and "there will be no return to previous boom times due to tighter regulation and corporate governance", the report says.