It’s looking grim for financial IT contractors – rates are down, job numbers are low and contracts are shrinking. But at least most banks are holding off using the axe.

A survey by Computer Weekly/SSL reveals that the number of finance contractor jobs fell by 16.1% in April – the biggest slump since 2001.

What’s more, a leaked e-mail from Merrill Lynch shows that the bank is cutting its contractor rates by 11%. It’s not alone – headhunters tell us that Barclays Capital and Royal Bank of Scotland are forcing contractors to take a 10% cut or leave, and others may also follow suit.

A study by Skillsfair earlier this month revealed average daily rates fell from £662 in 2007 to £535 in the first quarter of this year.

Stephen Grant, managing director of IT recruiters Cititec, says it’s not across the board: “It doesn’t make a huge amount of sense for some banks to cut rates if others don’t. It just means they will lose their contractors to competitors.”

And Julia Bosworth, manager of the contractor division at IT recruiters Project Partners, says although banks are tightening their belts, they are yet to start firing contractors.

“Some of our clients are cutting contractor rates by up to 10% and forcing us to reduce our margins, but they are not reducing headcount yet.”

But Steve Pragnell, of recruiters PM3 Consulting, thinks the increasingly dodgy conditions may be prompting contractors to move on by their own volition.

“A worrying trend is of clients not extending contracts, offering unfavourable extensions, such as just one month, or leaving it so late that freelancers are moving on of their own devices,” he told Contractor UK.