Employment at City law firms has grown by 20,000 in the space of a year, according to a new report.

The annual health check on the UK’s financial and professional services industry by City cheerleader TheCityUK reveals that 339,700 people are now employed in legal services, compared with 319,700 a year ago.

The 6.3% rise is further evidence of the importance of the legal profession, with legal services overtaking insurance to become the third biggest employment sector in the City.

The share of gross domestic product accounted for by professional services, which includes legal services, rose slightly from 4.6% in 2010 to 4.9% in 2011, the most recent year for which figures are available.

London (305,700) has by far the largest number of people working in professional services, followed by Manchester with 24,700 and Birmingham with 21,900.

Exports of legal services have also enjoyed growth, with the trade surplus up from £2.9bn in 2010 to £3.3bn in 2011. Most of the growth relates to rising fee income of specialist legal firms.

Last month, a report by TheCityUK highlighted new research that showed London is the preferred seat of arbitration, with companies twice as likely to choose English law than any other.