Growth at the U.K.'s largest law firms slowed in the 2018-19 financial year, as market uncertainty affected firms' ability to improve on the previous year's bumper results.

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Combined revenues across the U.K.'s top 50 firms grew by 9.6% to £24.2 billion. The increase, though achieved against a backdrop of economic uncertainty amid ongoing Brexit discussions, is a clear slowdown compared with 2017-18, when the total combined revenue number grew by 15.4%. It is also the lowest rise since 2015-16.

The average profit per equity partner (PEP) for a top 50 firm reached £750,000, a 4% rise on the previous year, when the figure grew at the same rate.

The slow PEP growth means that U.K. firms are still struggling to keep pace with their American rivals. Collectively, average profit per equity partner among the top 100 U.S. firms grew by 6.5% to reach $1.8 million (£1.5 million) in 2018, while the group measured an 8% uptick in revenue.

The U.K. top 50′s increase in revenues was largely offset by rising headcount numbers, which rose 8.5% to a combined total of 55,615 across the 50 firms. That meant average revenue per lawyer remained almost flat, rising just 1% to reach £384,000.

But the U.K. growth was at least consistent. Just three U.K. firms – Hogan Lovells, Norton Rose Fulbright and Hill Dickinson – saw revenues drop year on year.

The fastest-growing firms for revenue were Keoghs, Fieldfisher, DWF, Freeths, Ashurst and Addleshaw Goddard, all of which saw at least 13% rises.

"Even if there is a slowdown, it does not feel like a repeat of 2008″

Commenting on activity levels through the year, Sebastian Pritchard-Jones, senior partner-elect at Macfarlanes, said: "The main challenges in the market came from the political uncertainty which peaked in the run-up to the end of March. That certainly affected decision-making on the part of some clients. We sense however that if/when we have finality to the political process, there is quite a bit of pent-up demand that could be unleashed on the transactional side."

He added: "Even if there is a slowdown, it does not feel like a repeat of 2008."

At the top end of the table, Linklaters leapfrogged its Magic Circle rival Allen & Overy and transatlantic firms Hogan Lovells and Norton Rose Fulbright, to take the third spot behind DLA Piper and Clifford Chance.

Its growth means the financials of most of the Magic Circle are now very closely matched. Linklaters and Allen & Overy's revenues are £1.6 billion, while Clifford Chance is on £1.7 billion and Freshfields Bruckhaus Deringer is on £1.5 billion. PEP at the firms is also similar, with all four firms having PEP of between £1.6 million and £1.8 million.

"We're certainly not predicting a cliff-edge and our view is that London will remain one of the world's most important financial centres"

Linklaters' managing partner Gideon Moore said: "The uncertainty that Brexit creates is clearly unsettling but it is in moments like these that our teams can be of most value to our clients.

"We're certainly not predicting a cliff-edge and our view is that London will remain one of the world's most important financial centres, and elsewhere we see significant scope and opportunity for dealmaking. PE firms and funds, for example, are sitting on record amounts of dry powder, fuelling record levels of take-private and carve-out business."

Freshfields senior partner Edward Braham added: "I expect continuing demand from clients who are dealing with change and complexity across their business. At a time when the world is stepping back from globalisation, it has never been more important to have lawyers who bring global experience."

Eleven firms reported double-digit PEP increases, including Ashurst, which increased its PEP by 30%, and Hill Dickinson, where it rose 25.9%.

However, PEP dropped at Bryan Cave Leighton Paisner, Pinsent Masons, Macfarlanes, HFW, Charles Russell Speechlys, Mills & Reeve and Pennington Manches.

Herbert Smith Freehills senior partner James Palmer said: "What we're seeing is more complexity in transactions and more complexity involved in getting them through. That complexity is a key factor in the uptick in our workload. If transaction volumes fall still further, you reach a point where it has an impact on performance, but our goal is to get a share of that complicated work which justifies clients using us."

Hogan Lovells U.K. and Africa head Susan Bright added: "There was a resurgence in demand for Brexit-related advice – most recently in relation to the impact of a potential no-deal exit on October 31. Despite the ongoing uncertainty surrounding Brexit, we saw a healthy level of dealflow and overseas-led investment, with many high-value transactions taking place in the technology, life sciences and financial services sectors."

Click here to see the full table of results

With reporting by James Willer.

Closing the Gap: Second Tier UK Firms Post Strong PEP Rises

For a detailed breakdown of profit per equity partner (PEP) figures across the UK's Top 50 firms, as well as revenue, headcount and leverage figures see the full rankings available through ALM Intelligence's Legal Compass.