Fee income growth achieved by the top 100 UK law firms more than halved in 2012/13, according to financial consultant Deloitte.
The country’s leading firms managed a 2.6% increase in revenue for the last financial year, compared with a 6.6% increase in 2011/12.
The year was capped off by a quarter with just a 2.4% increase in fee income – the lowest recorded since October 2010.
Growth was highest in firms ranked 11-25, with a fee income increase of 5.2%, largely driven by increases in fee-earner productivity as fee-earners boosted their hours following mergers in the previous year.
The modest increase was attributed to a 2.4% rise in fee-earner headcount and a subsequent rise in transactions.
With the demise of top-60 firm Cobbetts affecting lenders’ confidence in the sector – in addition to the threat from new entrants to the market – most firms remain cautious about the future, predicting a 3.9% increase for 2013/14.
Jeremy Black, partner in Deloitte’s professional services practice, said mergers are likely to seem increasingly attractive to firms struggling to increase income.
‘Law firms have faced another tough financial year. Rates remain suppressed as clients focus on value for money, while new players – such as consumer businesses and insurance companies enter the market using new business models.
‘Consolidation continues to gather pace as the "survival of the fittest" reality begins to bite across some areas of the professional services sector.’