Sterling rise hits profits at UK’s biggest law firms

The rise in the value of the pound this year has hit profits at the UK’s biggest law firms, data show.

The top ten UK firms by revenue saw fee income dip 2.7 per cent in the first quarter of this financial year compared with the same period a year earlier. This contrasts with a strong showing by those ranked 11 to 25, which averaged 6.2 per cent fee growth in the same period.

Overall, the biggest 100 firms recorded average revenue growth of 6.1 per cent between May and the end of July compared with 2013, according to Deloitte, which compiled the data.

The largest firms have sizeable overseas networks which account for a bigger proportion of their revenues, which means they were hit more heavily by sterling touching record highs earlier this year.

“Part of it is to do with the exchange rate, and part of it is to do with generally doing business in London, which has performed strongly both in comparison with the rest of the country and globally,” said Jeremy Black, a partner at Deloitte who advises law firms on strategy. “While the top ten firms have large overseas networks, the 11-25 firms tend to be based in London, and do much of their business in London.”

The outlook was less positive for firms with smaller revenues based outside the capital, Mr Black said. Firms that specialise in personal injury – traditionally clustered in the northwest of England – have been particularly hit by consolidation and government reforms aimed at curbing a so-called compensation culture.

The revenue drop in the first quarter is a rare decline for the UK’s elite firms, which outpaced the rest of the legal market in the 2013-14 financial year, reporting record revenues and profit spikes of at least 6 per cent.

The decline may also be shortlived: while sterling touched a six-year high against the dollar in early July, it has since weakened.

A 2.1 per cent drop in fee-earner headcount among the top ten firms over the quarter suggests they have been more ruthless in firing lawyers who are not performing, according to Deloitte’s research.