Up to 3,000 jobs are forecast to go in the UK's financial services sector in the next three months after business growth slowed in the last quarter.

The past three months have seen income fall for the first time in two years, profitability growth flatten, and recruitment slacken, according to a study published today.

The recruitment slowdown is expected to deepen into a modest cut among firms, according to the latest Financial Services Survey compiled by the CBI and accountants PricewaterhouseCoopers.

The banking sector, which has seen an unexpected deterioration in conditions, is expected to bear the brunt of the job cuts following a marked fall in profits.

Steep job losses are also expected in life insurance despite profits growing at the fastest rates on record as the introduction of IT and offshoring make an impact.

But extra recruitment is expected by fund managers following an expected recovery in volumes and values of business.

Building societies meanwhile have confounded expectations of further decline, despite suffering a greater than expected fall in profits.

Meanwhile marketing and investment plans for the year ahead have been scaled back, according to the national poll.

But income and business volumes are expected to recover and profitability to strengthen, it added.

In the three months to September, growth in business volumes slowed sharply, as 28 per cent of firms said volumes had grown and 26 per cent reported a decrease - a net balance of two per cent, representing near-flat growth.

This was in line with expectations, but was a marked contrast to June's balance of 44 per cent, and ended a year of consistently robust growth.

The CBI said this quarter's relative weakness is not expected to last, with ten per cent of firms more optimistic about the overall business situation than they were three months ago.

Total operating costs are still rising strongly (a balance of +22 per cent), though the rate of increase has eased from earlier this year.

The combination of falling values of business, steady volumes, and rising costs meant that profitability stabilised over the past quarter after a solid year of firm growth.

But the strong upward trend is expected to return, with a net 31 per cent of firms predicting that profitability will grow over the next quarter.

This represents the strongest expectation on profits for five years since September 2000 (+32 per cent).

Meanwhile there has already been a significant slowing in hiring over the past quarter (a balance of +8 per cent reporting increasing staff, compared with +35 per cent in June), in line with predictions in June.

Looking forward, a modest cut back in jobs is now expected over the next three months (-5 per cent).

Expenditure plans for the year ahead have also been scaled back. Spending on marketing and on investment has moderated noticeably since June.

Richard Lambert, CBI director-general, said: "The financial services industry is a real powerhouse of the UK economy, and it is a sector in which the UK leads the world. But policy makers must not take it for granted - they must nurture it and protect it from undue restrictions at home or abroad."