The spending boom in trading technology within bulge-bracket banks looks set to grind to a halt, and the axe is being sharpened.

This year was a bumper one for trading technology spend in the UK, with an increase of 10% driven mainly by the replacement of legacy systems and increased trading levels.

The latest figures from research and advisory firm Kimsey Consulting suggest this figure will shrink to 4% in 2008, but this isn’t the whole picture. The smaller firms (those with less than 100 trading positions) are expected to continue investment, but the larger companies (namely the big investment banks) are predicted to keep spending flat.

Stephen Kimsey, author of the report, says hiring was stepped up over the last 12 months to cope with the increased activity. Some firms have said they are going to cut headcounts, but the largest proportion (40%) say they are “uncertain”.

“The expectation is that a proportion of those who have said they are uncertain are simply waiting until their firms have publicized the cuts before they admit to them,” he says.

The survey took in 200 responses, covering end-users and management (technology and operations).

Kimsey said it anticipated cuts within the technical teams both on the trading floor and within the support offices.

He reckons it’s a “mixed picture” for trading technology vendors, who may find their margins squeezed as banks try to bargain on price.

“The bigger traders, who often have tech budgets bigger than the vendors themselves, have a lot of negotiating clout when it comes to negotiating on deals. The smaller firms aren’t in such a privileged position,” Kimsey says.

The smaller firms make up a greater proportion of the vendors’ business, so the survey predicts they will not really be squeezed by the credit crunch.

Total UK spending on trading technology is forecast to reach £3.4bn in 2008, according to the survey.