Law firms in Scotland are strongly optimistic about the coming year, according to a survey published today.

More than two-thirds (69%) of firms reported higher fee income in the first half of the 2014/15 financial year. Nearly half (44%) stated they would have higher PEP than the same period last year.

The report, from accountancy and business advisory firm BDO, shows 86% saying more consolidation of mid-tier Scottish firms is likely or highly likely , with 79% expecting mergers to be with UK national firms.

More than two-thirds (69%) have been in merger talks, saying the lack of a firm with a suitable culture was the main barrier. 

Figures suggest increased confidence in the Scottish legal market. Additional capital was injected by partners of a fifth of firms. More than a quarter (27%) said they had borrowed more from their bank.

However, nearly half (43%) believe that more redundancies are likely or highly likely.

BDO professional services partner Charles Barnett said the survey revealed a more financially aware, and savvy, group of firms ‘who understand that managing the accounts is as important as managing clients and the firm’.

Figures show a harder edge to management with all respondents reporting they had managed partners out of the business in the past year. Nearly a quarter (22%) demoted partners from equity to non-equity.

More than one in 10 significantly reduced an equity partner’s interest in the firm.