Recruitment is booming in City IT departments as financial companies increase their investment in systems to support regulatory compliance and security.
Rising demand for IT staff has pushed rates for contract staff to £50 an hour for the first time since 2001. Contract rates are often used by analysts as a barometer for the overall climate of a sector.
The upturn, revealed in research by iProfileStats and the Association of Technology Staffing Companies (Atsco), marks the end of the slump that followed the dotcom collapse in 2001.
Atsco predicted that demand for IT staff would continue to rise in 2006, with further pay rises likely, following a year of bumper profits in the City.
"Pay for City IT contractors has reached a milestone. This year could be the year when the ghosts of the dotcom era are finally laid to rest and IT pay in the City tops the £54 per hour record set during the height of the boom," said Atsco chief executive Anne Swain.
The impact of regulatory regimes such as Sarbanes-Oxley and Basel 2 has boosted demand for IT staff across the finance sector, Atsco said. Sarbanes-Oxley has generated "huge amounts" of work for IT staff, as companies re-aligned their IT systems, said Swain.
"The Basel 2 regime requires sophisticated risk models to be developed using data extending back many years, and the task for IT departments is huge. This year will be a year of frenetic activity as the 2007 compliance deadline looms nearer," she said.
The research revealed that an increase in spending on security, which rose from an average of 11% of the IT budget in 2004 to 13% last year, has created a surge in demand for IT security staff.
Hourly rates for security experts rose by 22% last year, allowing contractors to charge premiums last seen in the dotcom boom.
Rates in the finance sector last reached £50 in June 2001. Rates reached a record average of £54 an hour during the dotcom boom in December 2000, but plummeted to less than £35 an hour as the market bottomed out during 2002.