The value of the UK legal services market fell last year and there will only be modest growth over the next two years, with uncertainty over Brexit a contributing factor to researchers downgrading their forecasts, a new report has revealed.
It said that while large law firms have continued to see revenue growth, it has been in the medium and small law firm sectors where revenues have been hit.
The seventh annual edition of the UK Legal Services Market report, published by IRN Research, put the legal market in 2016 at £31.5bn, down from £32.2bn in 2015.
It said the UK’s decision to leave the EU could have both a positive and negative effect on the legal market. “On the positive side, it is likely to require substantial reworking of UK law which may require companies and public bodies to consult with their lawyers to assess the changes that may result. In particular, firms exporting to or with operations in the EU are likely to require substantial legal advice on the implications of Brexit and the type of Brexit that may result.
“Moreover, the devaluation of sterling is making UK law firms’ costs look much cheaper than they did before the Leave vote, which could boost overseas work.”
However, Brexit could make it harder for UK firms and lawyers to operate in the EU, it said, while London may lose its appeal as a centre for international arbitration and corporate work.
“Large corporations have already received flyers from law firms in Singapore, Hamburg and Paris, among other European cities, suggesting that they move their legal representation overseas. US firms may also restructure their European operations moving some lawyers into the EU.”
The wider economic uncertainties caused by Brexit, as well as the changes planned for the personal injury market next year – the largest consumer law segment of the profession – meant IRN Research revised its forecasts downwards from last year and predicted that the legal services market would grow by around 3% in 2017, with growth picking up to 4% in 2018 and then being around 5% per annum from 2019 to 2021.
By 2021, the turnover of legal services companies could reach £38.8bn – 23.5% larger than in 2016.
By far the largest segment is legal work for business and commercial affairs (including commercial property), accounting for 45% of market revenue.
The largest consumer law segments are personal injury/accident/medical negligence work, and family law, contributing an estimated 11% and 8% respectively of UK market revenue. Residential conveyancing and employment law generate around 7% and 6% of the total market value per year.
Looking ahead, the report said: “In the next year or so, law firms are likely to continue to look more closely at controlling costs while more law firms and legal services providers will explore options such as unbundling of services and a contractor role in B2B legal markets: as major clients invest more in-house, these clients will increasingly seek to unbundle legal services and buy-in only certain legal services (presumably those that can be provided at lower cost/greater expertise by external providers).
“This will make the legal market much more competitive and it opens opportunities for small and medium sized law firms to specialise in specific service areas and become stronger competitors to the large generalist legal firms.”
This year, IRN Results also surveyed 150 lawyers working in four consumer law areas: conveyancing, family, personal injury, and wills and probate.
“Overall, the results suggest that the majority of those working in consumer law – six out of 10 – have experienced both volume and value growth in their practice areas in the last 12 months. However, many of those working in personal injury have suffered, with only four out of 10 experiencing volume growth in the last 12 months.
“Looking ahead to the next 12 months, a majority are expecting to witness revenue growth in their practice area but growth will be weakest in personal injury and wills and probate. Of some concern is the fact that a third are expecting no growth at all.”