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Business confidence among the UK’s top lawyers has dropped from sky-high levels to its lowest rate in almost five years in the clearest indication yet that City partners expect shifts in the global economy to hit the legal sector.

The quarterly Legal Week/EJ Legal business confidence poll shows 30% of partners are expecting double-digit revenue growth over the next 12 months, down from last year’s high of 70% and significantly down from 66% last quarter.

The figures are among the lowest recorded since the survey was launched in 2001. In the first half of 2003 the percentage of lawyers expecting revenue growth of more than 10% dipped below 30%.

However, the drop in confidence fell short of outright pessimism, with 56% maintaining that they would see a rise in fee income. Twenty-six percent said they thought fee income would remain static and 12% said that they thought fee income would decrease, although only 3% went so far as to say that it would decrease by ‘a lot’.

Clifford Chance London managing partner Jeremy Sandelson (pictured top) told Legal Week: “As a firm we are certainly much better placed to deal with a drop in business levels now than we have been in the past. Our global network is operating better than ever, which means that if activity levels slow down in the UK we will be able to move lawyers to those countries where markets are still very active.”

The 265 respondents strongly believe any growth will come from activity in emerging markets. Just 5% expect the UK to be a primary growth market in the coming 12 months, while less than 1% predict the same for the US. Instead, 45% have earmarked Asia as the jurisdiction they expect to provide the most new work. A further 25% named the Middle East as the area they think will grow the most, while 18% cited Central & Eastern Europe.

Sandelson added: “There are still many countries out there where liquidity is not an issue. The law firms which are more likely to face difficulties by a serious downturn are those that are over-reliant on domestic clients or one specific area.”

Allen & Overy corporate head Richard Cranfield (pictured right) said: “It is clearly going to be less busy than last year but it is more a return to normality than anything else. Overall, our expectation is that the European market will be busier than New York.”

Despite a slowdown in deal flow, corporate finance was once again highlighted by partners as the most popular practice area to expand, cited by 51% of the panel, followed by litigation (27%) and banking (16%) as the top areas to invest in.

Latham & Watkins finance partner Bryant Edwards was upbeat, saying: “One benefit of being diversified both in terms of specialism and where you practise is that you can still do well even when one market is down because another will be up – things tend to balance out.”

Despite the assurance, the results will be watched closely by managing partners across the UK wary of a period of sluggish profits after years of sustained increases.

Baker & McKenzie London managing partner Gary Senior told Legal Week: “For the past two years we have seen increases all round – this is a different situation. It is not clear whether we are embarking upon a prolonged period of recession or not, but there are definite signs of a slow down in the legal market.”

Addleshaw Goddard partner Richard Linsell said: “In the tighter times we are moving into, law firms will still do well – some being counter-cyclical – but it is those that are innovative and hungry that will outperform.”

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