Eight out of every 10 law firms increased fee income in 2013-14, with 70% achieving rises above inflation, according to PwC's annual survey of the sector.

Despite pricing pressures, stability and confidence is returning to the legal sector, the report finds, with the number of UK law firms increasing fee income higher than at any time since 2008.

Significant merger activity has contributed to the overall uptick in fee income, and PwC's survey suggests that the legal sector has benefitted from consolidation in the market after previous years' results indicated that an over-supply of firms offering legal services had a negative impact on income.

At top 10 firms, average profit per equity partner (PEP) exceeded £1million for first time in six years, up 4% on 2013. However, more than half of the increase was driven by a 5% reduction in full equity partner headcount.

At 40%, top 10 firms recorded their highest average net profit margin since PwC's annual survey was launched 23 years ago. Firms ranked between 11-25 by the accountant have finally reversed a five-year trend of margin deterioration by posting an increase, with profit margin rising from 26.0% to 28.2%.

David Snell, leader of PwC's law firm advisory group, said: "The survey paints a brighter picture for the future of law firms than a year ago. The majority of firms surveyed expressed confidence about their growth prospects over the coming three years, although uncertainty remains about growth prospects for the sector as a whole. Merger activity looks set to continue, and international expansion remains a priority for many."

Despite the improved topline figures, all categories of firms saw fee income per chargeable hour fall: by 8.1% for top 10 firms; by 2.8% for firms ranked 11-25; and by 9.3% for those in the 26-50 group.

Combined with an increase in chargeable hours to near 2008 levels, PwC's findings suggest firms are busier, but pricing pressures remain acute.

Snell added: "With challenges around the business model, changing client demands, and talent retention, law firms are operating in a very different market to that of five years ago. Recent law firm failures and enforced mergers are a reminder that the tide can turn very quickly."