Commercial law firms are continuing to expand their staffing levels, despite the two-year slowdown in corporate activity, according to a major survey.

Research by TMP Worldwide on the recruitment practices of 127 law firms in the first half of this year shows 55% of firms increased staffing during the last quarter, with one-third (36%) staying the same and 9% reporting a decrease.

Although the findings indicate commercial firms are still hiring new staff, the report confirms a widespread move to cut costs.

Ninety-six per cent of firms admitted embarking on some form of cost-cutting exercise, including redundancies and cuts in salaries and bonuses. One in five surveyed law firms have made redundancies in the first half of the year, compared with a wider average of 40% of firms in the UK as a whole. UK practices that have admitted making redundancies this year include Stephenson Harwood, Dechert and KLegal.

The report also suggested that the lack of confidence during the first half of 2002 would be replaced by renewed optimism, with more than half (55%) expecting their headcounts to increase during the next quarter.

Tim Skipper, head of legal recruitment at TMP, said: "When the economy picks up, the war for talent will be back on again as demand in the labour market increases."

The report concluded that 46% of legal firms aimed to improve training, 30% to offer guaranteed bonuses and 15% to introduce fast-tracking for the best employees.

The concentration of increases in lawyer salaries in 2000 and 2001 at the junior end of the pay scale is thought to have resulted in a sharp reduction in demand for hiring newly-qualified lawyers.