Financial services firms based in the city of London will continue to shed staff over the next two years, taking employment in the sector back to its lowest level in twenty years, according to a study released Tuesday.

The Center for Economics and Business Research predicted the average number of jobs in wholesale financial services in the city would fall to 236,000 by 2014, down by 118,000 since 2007 before the global financial crisis exploded.

"The fall in activity is partly a function of the weak economy, partly a hangover effect from the financial crisis and partly caused by increasing regulation which limits access to cash to bankroll financial transactions," Chief Executive Douglas McWilliams said in a statement.

"The business model for many firms in the city -- which was based on taking a percentage from yields of 8% plus -- has to change in a world where low yields are likely for many years to come."

London and New York vie for the title of the world's leading financial center, but banks and investment firms in both cities have been hit by the collapse in activity triggered by recession, the regulatory changes introduced in its wake and trading scandals.

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Swiss bank UBS said last week it was planning to shed 10,000 jobs over three years, equivalent to about 15 percent of its workforce, as it scales back investment banking to focus more on wealth management.

Financial services firms account for about 10 percent of the British economy and have been an important source of income for many other businesses in London, from real estate agents to restaurants and art dealers.

Britain emerged from recession in the third quarter, thanks in part to the impact of the 2012 Olympic Games, but recent data suggests the underlying picture remains fragile. October retail sales were poor and consumer confidence is at a 6-month low. The wider services industry grew at its slowest rate in almost two years last month.

The deepening economic gloom across Europe is also taking its toll on London.

CEBR reported a sharp drop in trading in debt and equity this year, and the first decline in foreign exchange trading since 2009. British mergers and acquisitions activity has fallen by about a third, international M&A by even more, it said.