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Revenue slump could affect lawyers in private practice

Posted by: Laurence Simons 17/12/12

Instability in the eurozone, a lack of demand for legal services and the general economic gloom that has settled over the UK like mizzling rain have all contributed to a disappointing second quarter for the top 100 British law firms, with a new report from Deloitte recording growth levels of 3.4 per cent in the period ending October 31st.

While it is unlikely that this will lead to a host of people in legal jobs driving their car around the block 15 times on Christmas Eve, staring bleakly at the skyline and wondering how to tell their children that all they're getting for Christmas is a packet of unisex socks to share, it is nevertheless worrying news for the sector.

This is the slowest rate of growth seen in the industry for seven quarters and marks the fourth in a row when expansion has contracted.

Given that firms were enjoying revenue increases of around ten per cent at this time last year, it seems clear that the macroeconomic situation and worries over the future of the common currency are having a serious impact on the performance of the legal industry in the UK.

Jeremy Black, partner at Deloitte's professional services practice, suggested that what little growth was seen over the three months largely came from mergers between mid-tier firms looking to consolidate their skills and pool their resources.

"A tough, competitive domestic market is forcing a change in the profile of mid-tier firms. Consolidation is one way to expand the client base and also deepen specialist knowledge - whether that is in an industry focus or a practice area," he explained.

This follows a joint report from Winmark and Deloitte which found that professional services providers - including law companies - have been engaging in more merger activity over the last 12 months in a bid to stave off the financial troubles visible on the horizon.

Increasingly, rather than attempting to amalgamate smaller firms into their own practice, mid-sized businesses are looking to connect with their peers because of the additional security they can offer.

On a more positive note, law firms remain reasonably confident that they will emerge from their current slump in the coming months and begin enjoying increased growth as the legal landscape changes.

They forecast 5.8 per cent year-on-year growth for the quarter ending January 31st and 4.7 per cent for Q4, according to Deloitte.

"To achieve such strong increases in revenue, there will need to be considerable up-tick in activity levels over the second half of the year," concluded Mr Black.