Public services could face greater IT skills shortages as evidence shows the City has overtaken the public sector to become the UK’s biggest employer of IT contractors.

Research by recruitment specialist Giant Group plc, shows that 21.2% of IT contractors (19.9% six months ago) now work in financial services compared to 20.5% in the public sector (20.5% six months ago).

According to Giant, a bounce back in sales of retail financial products, growth in investment banking and hedge funds, and the need to upgrade legacy systems is driving IT job creation in the City.

Matthew Brown, MD of Giant Group said: “The City shed a lot of IT staff when the stock market fell, many of whom were hoovered up by the public sector as part of the e-government drive.”

He added: “City IT departments are now investing heavily in infrastructure. Projects that were put on hold during the downturn are being revived and financial institutions are hiring to meet demand from regulators.”

However, Giant warned that with the City’s requirements for IT contractors growing, and unemployment among IT contractors very low, the public sector may find it increasingly difficult to recruit and secure the skills it needs.

The survey also polled contractors on other issues concerning their current and future job prospects, including earnings growth, unemployment and what they look for in a contract.

The results show that confidence among IT contractors is at its highest level since the survey began nearly two years ago.

It found:

* 70% of contractors say their earnings have increased this year compared to 45% who reported an increase last year.
* 6.7% of contractors say their pay has decreased compared to 28% who saw a decline in income in 2003.
* Contractors not working for 60 days or more between contracts is now just 2.8%, down from 3.3% six months ago.