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The Law Society of England of Wales recently measured the scale and performance of the UK legal economy. They then presented the data and their findings across 3 standalone papers.

The first report provides a bird’s eye snap shot of the market as a whole. The second looks at the four leading sectors in legal services economy. The third report looks at the 12 leading practice areas.

On this occasion we want to start by looking at the first report. The report provided a market overview by sketching out the shape and composition of the UK legal industry.

On the supply side, in 2010 the legal market was made up of 267,000 – 320,000 individuals. The total UK legal services market was made up of 29,387 entities/businesses in 2010, of which 44.2% were solicitors, 33.2% were barristers and 22.5% were other legal services firms.

Unregulated roles such as paralegals have become more prevalent in the UK and international legal markets. In fact ‘legal associate professionals’ is one of the top 3 growth occupations in the UK.

Paralegals offer a way to cut costs and driven by this motive we have seen a restructuring of law firms which has changed the nature and composition of law practice. The report noted that the supply of legal practitioners in England and Wales is expected to grow by 8.6% between 2011 and 2020.

Legal process outsourcing, paralegal firms and other alternative business structures continue to put downside pressure on the old model of law practice.

Between 1995 to 2010 the turnover in the legal economy followed the wider economy. As we can read here, history shows that the legal economy generally mirrors the national economy, with a time lag of six to nine months.

However the economic downturn that began in 2007 hit the legal economy harder than the real economy. The drop in legal sector turnover declined by 6.6% in 2007-2008 and 4.9% in 2008-2009, compared with 1% and 4.6% respectively in the real economy. Real growth in the legal economy was also anaemic at 1.8% in 2010, compared to 2.1% in the whole economy.

Since 2007 the collapse in housing transactions and a contraction in the financial sector have been the central factors driving the negative trend in legal services turnover.

Real turnover in the legal services market rose by 3% in 2011 but is expected to have shown no growth or to have fallen in 2012 as the economy experienced a double dip recession.

Growth in real turnover in the UK legal industry is expected to enjoy an uptick between 2013 and 2015 as the economy edges out of recession. However it is likely to be held back by continuing difficulties in the housing market, which is not expected to show any significant growth until 2016/2017.

Real turnover in the UK legal services market has been forecast to increase by 4.2% per year on average over the period 2016-2020 and by 4.4% per year over the period 2021-2025.

Data also revealed that UK legal services have been a growing export service since 1995, growing faster than other professional services. Exact figures are impressive, from £382m in 1995 to £2943m in 2010.

On the demand side, customers to the UK legal market are made up of individuals who span the whole domestic and international public/private economy. Demand for regulated and unregulated legal services drove a legal economy worth £25.5bn in 2010 and £26.8bn in 2011.

In 2010 the UK legal market accounted for 7% of the global legal economy and 20.3% of the European legal economy. The total value of the global legal services industry was £379bn in 2010 and is forecast to reach £480 by 2015, an annual growth rate of nearly 5%. Growth in the European market is expected at 4.9% per annum over the same period.

Legal growth in the BRIC countries is expected to outstrip the UK, EU and US law sectors. However the continuing pre-eminence of English legal system as the leading capital for dispute resolution, means that English and Welsh firms could be well positioned to take advantage of changing global growth patterns.

However London increasingly faces challenges from New York, Paris, Singapore, Hong Kong and Dubai as centres of excellence for dispute resolution.

Looking forward technological and process innovation can be expected to drive change in the legal sector, impacting on cost of delivery and price to purchasers as well as on the way in which services are delivered and experienced

However, it’s interesting to note that expenditure on ICT is lower in legal services than in the professional services sector as a whole.

The broad sketches of this report by the Law Society paint the picture of a UK legal economy that is continuing to face challenging headwinds. It paints a picture of an industry undergoing deep structural changes but what matters most is that the medium to long term forecast looks positive.

In reaction to a changing economic environment and continuing technological progress the structure, form and method of law practice is changing, as is the source of demand. The largest law firms in England and Wales have the potential to tap into growing international legal demand if they can craft the right strategy.

Smaller to medium sized law firms have to react to a different market. But they can position themselves effectively if they can set themselves apart from competitors and steal business.

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