City salaries have dropped by almost 10% since the start of the year as the credit crunch and drying-up of stock-market flotations and takeover deals has slowed recruitment.

Recruitment specialist Morgan McKinley said the number of new job vacancies in London's financial services industry was 17% lower in May than a year earlier. Month on month, vacancies fell 8% from April.

"The decline in new job numbers during May indicates a level of caution still remains among some employers within the City," said chief executive Robert Thesiger. "Likewise, the increase in available talent means it is a more challenging market for many jobseekers than a year ago.

"The next key indicator as to the health of the City, and in turn the outlook for the financial services jobs market, will be the larger investment banks' second-quarter trading updates. These results will play a major role in determining confidence levels in the industry."

For the fifth month running, the number of people looking for jobs in the City outweighed the number of jobs being offered.

Morgan McKinley said the average salary paid to its clients in the City and Docklands peaked at £53,246 in January, and has fallen in each of the following four months to hit £48,347. That is 5% down on average salaries a year ago.