Experts have warned small firms not to be ‘blind to reality’ after a new survey indicated the vast majority have no intention of cutting spending over the next six months – despite turbulent economic conditions.

More than a quarter (27%) of UK firms with three to 10 practitioners actually plan to increase spending on staffing, IT, marketing and office improvements, while two-thirds (64%) plan to continue spending at the same rate, according to a study by the Key Business Finance group at Heritable Bank, seen exclusively by the Gazette.

Only 15% of firms expected fee income to decrease, with the remainder confident it would either stay the same or increase. Just 13% of firms were saving money, while most (88%) had an overdraft.

Andrew Otterburn, principal at Otterburn Legal Consulting, said: ‘It’s positive if firms are being optimistic but not if they’re being blind to reality. Smaller firms are the ones that are most vulnerable because they don’t always have financial experts on hand or the greatest financial expertise.’

Nick Sanders, managing director of Heritable’s Key Business Finance group, said he had already seen an increase in applications for funding from the legal profession this year.

But Frank Maher, partner at Liverpool firm Legal Risk, warned that firms would find it increasingly difficult to secure a loan. ‘Law firms were always seen as safe as houses when it came to lending money. But look what happened to houses.’

Legal management consultant Simon Young said firms should look to cut costs rather than increase rates, and expressed ‘surprise’ that more firms were not looking at reducing spending.

Despite firms’ positive outlook, overall confidence in the sector fell, with 65% confident in the current climate compared to 82% six months ago.

The survey of 100 law firms in England and Wales was conducted in June and July this year.