Thousands of job cuts have been made across the UK's banking sector in the fall-out from the credit crunch, with many embattled banks also putting a freeze on recruitment as the crisis takes its toll.

Hays yesterday signalled the extent of the trouble in the sector as it said its City recruitment levels in the UK plunged by 20 per cent in the three months to the end of September, which followed a 20 per cent fall the previous quarter.

The group said the housing market downturn was also hitting recruitment in the UK property and construction sector.

Housebuilders have been laying off thousands of staff as they put construction projects on hold amid record price falls and as fewer buyers are able to secure mortgages in the credit squeeze.

Net fees fell by 8 per cent in Hays' UK and Ireland division.

Strong demand in the education, healthcare and retail and purchasing markets helped offset the recruitment slump elsewhere.

It has also been shifting focus on to the public sector, which is less affected by the current woes, with 15 per cent growth in net recruitment fees over the quarter.

Hays said it was keeping a tight control on costs to help it through the tougher recruitment market, itself cutting jobs to save money. The group reduced its UK and Ireland workforce by 5 per cent in the first quarter, which followed a 7 per cent cut – or 400 staff – in the previous six months.

Alistair Cox, chief executive of Hays, said: "In the last two quarters we have continued to take action to reduce our cost base in those markets already affected by the wider economic issues and going forward we will continue to keep a tight control on costs, focus on cash generation and react rapidly to changing market conditions."

The City market, which includes recruitment among banks and legal firms, accounts for around 12 per cent of its domestic business. It said that demand for permanent staff in the UK continued to fall, although temporary placement recruitment remained stable, except in the construction and property market.

Hays said last month that recruitment in the residential building industry had switched to "possibly the worst market we have witnessed for a decade in a matter of weeks" as the housing market slowed.