Growth will be fuelled by UK firms operations overseas and to a lesser extent liberalisation of the legal industry via the Legal Services Act
London, United Kingdom (PRWEB) November 28, 2011
The Legal industry in the United Kingdom is expected to experience a slow recovery over the coming five years, according to IBISWorld, the UK’s largest publisher of industry market research. According to IBISWorld’s latest report, growth will be held back by government fiscal austerity measures, which will affect not just public sector spending but also the private sector. Despite early indications of recovery, industry revenue is expected to decline by another 0.4% in 2011-12 to £25.5 billion as a turbulent economic environment continues to depress growth. Consequently, overall industry revenue is anticipated to decline by 0.8% annually over the five years.
The global financial crisis delivered a substantial hit to the Legal industry in the UK, with revenue declining by 1.9% in 2008-09 and then a further 5.4% in 2009-10. Ever since, recovery has been slow as debt woes in Europe and tighter capital restrictions constrain banking liquidity and consequently dampen economic activity. Worst affected have been the top-tier firms, which earn the bulk of their revenue from major corporate clients. Although initial activity resulting from the collapse held up revenue over 2009, a decline in corporate transactions and merger and acquisition activity caused revenue and profits for the large firms to fall in 2009-10. However, as corporate investments pick up both locally and abroad, magic circle firms which have an estimated 10% of the domestic legal activities market have reported marginal revenue growth but greater profit growth made on the back of efficiency gains. According to IBISWorld, despite early indications of recovery, industry revenue is expected to decline by another 0.4% in 2011-12 to £25.5 billion as a turbulent economic environment continues to depress growth. Consequently, overall industry revenue is anticipated to decline by 0.8% annually over the five years.
According to IBISWorld analyst, Ee Jen Lee, the gloomy days are expected to end beginning 2012-13, with industry revenue expected to grow by 2.3% annually over the five years through 2016-17 to reach £28.6 billion. “Growth will be fuelled by UK firms operations overseas and to a lesser extent liberalisation of the legal industry via the Legal Services Act (2007),” says Jen Lee. This new regulation, which came into effect on 6 October 2011, has been dubbed the 'Big Bang' by many industry participants as it will change the face of ownership of many of the legal firms, allowing non-lawyers to own a stake in law firms for the first time.
The Legal industry in the UK has healthy profit levels but has been under pressure of falling revenue. Law firms engaged in large-scale cost reductions over 2009, including a wave of job cuts and outsourcing support functions. This largely protected margins, which sit at about 28% of revenue. In coming years, profits will come under pressure as clients increasingly demand alternative pricing models to the main practice of hourly billing.
According to IBISWorld, the UK Legal Industry is in a mature stage of its life cycle. Some opportunities exist in the local market, but law firms have been encouraged to expand into regions such as the Middle East and Asia where promising growth prospects are evident. The industry is also likely to experience increased competition and consolidation as it matures further.
For more information, download the full report from IBISWorld on the UK Legal industry
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