City bonuses are set to slump 40% this year as the credit crunch bites, a leading economic consultant has predicted.

Continued turbulence in credit markets is hitting corporate deal-making and promises to leave the capital's high-flyers out of pocket, according to the Centre for Economics and Business Research (CEBR).

The CEBR predicts this year's bonuses - due to be paid in early 2009 - will total £5.1 billion, well below 2007's £8.5 billion haul.

The forecast comes a week after Bank of England Governor Mervyn King laid the blame for the current financial turmoil at the door of the City and its bonus culture encouraging ever-greater risk-taking among bankers.

The CEBR forecasts that bonuses will not recover to previous highs until 2011.

Managing economist Dominic Walley said: "Don't expect City bonuses to bounce back. There is a strong perception that bankers have been rewarded for getting it wrong.

"The credit crunch raises enormous questions about whether the City's bonus culture has been encouraging excessive risk taking. We expect bonus regimes to be scaled back over the coming years."

Investment banks who have suffered billions in losses on mortgage-backed investments hit by the crunch have already begun to wield the axe over thousands of staff worldwide.

Citigroup is shedding 9,000 jobs, Merrill Lynch 4,000, and Swiss bank UBS has unveiled plans to cut around 5,500 staff. The CEBR added that the bumper payouts for those who survive were likely to be curbed as banks look to rein in costs.

Economist Jorg Radeke added: "It is simple supply and demand. As the supply of money has dried up...demand has contracted. The crash in deals mean less work for bankers and bonuses following suit."