NatWest’s latest ‘Perspectives on the UK Legal Market’ report has warned that firms must prepare for a slowdown in work volumes in the coming year. While litigation and debt finance are expected to remain ‘relatively buoyant’, ongoing political uncertainty and structural shifts in the division of legal work are likely to place a downward pressure on activity in M&A, real estate and equity capital markets. As a result, it is estimated that City firms could comfortably accommodate a 5 per cent reduction in total headcount over the next 12 months.
Brexit to take its toll
NatWest’s head of the legal sector within UK corporate and institutional banking John Tsolakis has warned firms against complacency with the delayed onset of material adversities relating to Brexit. While some firms will benefit from a rise in advisory work as the negotiation process for Britain’s exit gets underway, the benefits of the groundswell will not be evenly felt across all firms, he cautioned: ‘It’s a double-edged sword. It’s very threatening in terms of volume and value of transactions, and the forward-thinking firms are already planning for the adverse consequences by looking at right-sizing and jobs coming out of the sector.
Talent drain to US firms
The growing strength of accounting-sector players and BigLaw is also likely to further squeeze a shrinking pool of work, with mid-tier firms most likely to be the hardest hit. In combination with a reduction in work volume, the trend towards larger firms will likely accelerate the pace of consolidation among mid-market players in order to combat the reduced opportunities for organic growth. The relative strength of the US dollar to the British pound will also place pressure on UK firms when it comes to recruiting top-tier talent – a significant challenge for UK players given the downward pressure on headcounts: ‘The fall in sterling means it’s now 20 per cent cheaper for US firms to buy talent than it was a few months ago… Top-end talent is being squeezed out, which is challenging lockstep and putting the whole law firm compensation model in question,’ Mr Tsolakis added.
Sources: Legal Week; Legal Business
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