Edinburgh can claim to be the UK's second financial city, but it may have a weaker employment outlook in the sector than its nearest rival Manchester, according to a new report.

Scottish Financial Enterprise has said the findings show a "mixed picture" but insists that Edinburgh is "robust compared to other cities".

Edinburgh and Manchester vie for the title of largest UK financial centre outside London, says the report from Capital Economics.

Edinburgh's financial sector is a larger part of the city's economy than Manchester's, accounting for 11% of jobs in 2011, below London's 20%, but above Bristol on 9%, Manchester on 8%, and Leeds and Birmingham on 6%.

Edinburgh still has the largest banking sector outside London, employing 15,300 people in 2011.

In the most recent financial services survey carried out by PricewaterhouseCoopers for the CBI, a positive balance of +62% of banks reported business volumes ahead in June compared with the previous three months, comparing well with +34% for financial services as a whole.

"Unfortunately an equally striking -59% balance of respondents said that banking jobs had been reduced in the previous three months - much worse than the -12% for financial services overall," the report notes.

Banks also expected to continue shedding labour in the current quarter.

"Edinburgh's economy must be hurting from that. However, there is much better news from an activity where Edinburgh really stands out: fund management." Almost exactly half of all those employed in the fund sector outside London and the South East worked in Edinburgh in 2011.

In this case a strong reading on output of +53% reported in the CBI/PwC survey was backed by an equally strong employment reading of +58%.

"It's also a sector which pays well, and Edinburgh must surely be benefitting from that, offsetting a lot of the problems in banking," the report says.

It adds: "The tricky judgement has to do with insurance, where Edinburgh again has the largest share of employment of any city outside London, but with Manchester a close second."

But while general insurance (Manchester's strength) reported positive balances in the employers' survey of +12% for output and +15% for employment, life assurance reported a "terrible" -95% output balance, and a meagre +1% balance for employment.

"Commissions and profitability are reportedly plunging," the report notes. "Looking forward, the risks to employment in Edinburgh may be greater than in Manchester, if the life sector doesn't pick-up soon."

Owen Kelly, chief executive of Scottish Financial Enterprise, said: "The report shows a pretty mixed picture which reflects the changes going on in the industry.

"We are seeing strong performance and growth in areas such as fund management and asset servicing, with Edinburgh now being seen as one of the leading asset servicing centres in Europe.

"While there is growth in these areas we have also seen some job losses in areas such as banking as the industry adapts to a raft of new regulation and the realities of the current economic climate.

"On balance there is much to be optimistic about for the industry in Edinburgh, it is a leading financial centre with a great wealth of skills in financial services together with the diversity of sectors which makes it so robust when compared to other cities."