With billion pound bank bail-out packages on both sides of the Atlantic, and worldwide equities markets in turmoil, the City job market has rarely looked grimmer.

Few jobs are available, redundancies have put many people on the street and even the best candidates have to worry about shrinking earnings potential, at least in the short term. Not only has Prime Minister Gordon Brown made an attack on the bonus culture a key part of his financial rescue plan, but banks themselves will have less money to give.

The job situation is likely to get a lot worse before it gets better, at least if the big recruiting and staffing groups are to be believed.

Several issued quarterly updates last week, and their outlook for the UK in general and the City in particular was uniformly gloomy.

"I don't think it's the beginning of the end of the cycle," said Paul Venables, finance director of Hays, which reported last week that UK fees were down 8 per cent for the quarter and City-specific revenues had tumbled 20 per cent year on year. "There is no doubt that in the UK, the real economy is being impacted."

Robert Walters and UK industry leader Michael Page International also reported slowing profit growth overall, stemming largely from huge troubles in banking in general and the City in particular.

"The outlook in the City is pretty dire," says Robert Morton, a support services analyst for Investec. But he notes that banking and financial services have historically cut too deeply in bad times, only to hire by the thousands once the economy quickens. "The City turns really quickly when it turns," he says.

The dismal state of the City labour market has spilled into the recruiting sector itself. All of the big staffing companies say they are cutting UK staff, mostly through attrition, and redeploying people where they can. But compensation for headhunters has dropped sharply, because they either work on commission or participate in profit-sharing.

Michael Page's overall headcount dropped for the first time last quarter after years of rapid growth, and Hays cut its UK headcount by 5 per cent on top of a 7 per cent cut in the prior six months.

Most smaller recruiting companies have not publicly reported staffing cutbacks, but they, too, are expected to suffer, as financial groups sharply reduce their hiring.

Robert Walters, chief executive of the company that bears his name, says that clients are tending to favour larger recruiting companies when handing out the few mandates they have.

"The buyers of our services tend to be procurement and human resources [executives] and they tend to go for larger more established firms when few jobs are out there. The others won't get a look," says Mr Walters, adding that while his company was squeezed out in previous downturns, it was now large enough to benefit from the trend.

Still, a few corners of the City job market are not completely dead and there are still some jobs to fill. As a result, the market for temporary and contract workers is holding up, as human resources departments opt for quick fixes rather than long-term commitments.

However, Mr Walters notes that even that bright spot could fade if troubles continue to wash over the Square Mile and Canary Wharf.

Rainmaking bankers, strong analytic teams and successful traders are always in demand, and some City groups with strong balance sheets are using this moment to move into new sectors and upgrade their staff.

Professionals willing to move to expanding regions, such as the Middle East and parts of Asia, will also find it easier to find jobs, particularly if they have language or sectoral expertise. Even there, however, the banking job market is slowing and candidates will probably have to forgo the huge guaranteed bonuses that were standard only a year or two ago.

In London, insurance groups and some retail financial service providers are also looking for staff. European insurance companies in particular are hopeful they can scoop up new business in areas previously dominated by beleaguered US insurance giant American International Group, says Miles Hunt, chief executive of specialist recruiters Empresaria.

"European insurance groups are quite positive. It's somewhat countercyclical and it's doing rather well," he says. People with experience in underwriting and claims handling are in particular demand, he adds.

Big Four accounting firms and some midsized banks are also hiring in certain areas. They want professionals with experience in restructuring, insolvency and providing debt advisory services, says Mathew Halford, co-director of Fortuna Search and Selection.

Most "magic circle" laws firms and their slightly smaller competitors are continuing to take on graduate trainees, figuring that by the time they are seasoned enough to be useful, say in three or four years, business will have recovered. Allen & Overy will take on 120 graduates next year, the same number as in past years, says Genevieve Tennant, human resources director.

The firm has cut back on replacement hiring, in part because it is no longer losing swathes of mid-level associates to banks and other corporate in-house legal departments.

But Ms Tenant says: "You have to remain open to lateral hiring in this market. There are opportunities for strategic hires that don't always present themselves in other markets."

Just about every kind of company is looking for seasoned risk managers and compliance experts, as they prepare for tough economic times and the expected regulatory backlash.

The slump in the Square Mile started earlier and so far is expected to cut deeper than the troubles in the real economy. So back-office staff still have the option of moving into other industries that have not been hit so hard. Skilled auditors, accountants and human resources professionals are in demand at non-financial companies in London and across the UK, says Steve Ingham, chief executive of Michael Page.

"They don't have to stay in banking and they do offer us the opportunity to move them into other sectors," he says.

Still, the job market has rarely been tougher. "The number of quality candidates is unheard of," says Mr Halford. Calls keep flooding in from potential candidates. Some are worried that their employers or jobs could been in jeopardy, others expect sharply slashed bonuses and are wondering if they could do better.

"We're speaking with people every day but it is hard to put them in new positions, so we are telling some of them to stay in their jobs," he says.