City bank Merrill Lynch is reported to be cutting back on its spending on IT contractors, leading to fears that the whole sector might be hit.

Other banks including the Royal Bank of Scotland, Deutsche Bank and BNP Paribas are rumoured to be reviewing their use of IT contractors, according to a report in ITPro.

A leaked email, which has not be authenticated by Merrill Lynch, states that senior management at the bank require an 11 per cent pay rate cut for technology workers from the June 21st.

"This is part of a cost reduction programme being applied across the whole firm as a result of the difficult market conditions," a spokesperson from the bank told the publication.

The spokesperson added that the bank regularly reviews all aspects of its cost base to remain competitive within the market.

It was reported on fineextra.com last year that Citigroup was to cut 17,000 jobs, including a streamlining and rationalising IT across the group.