Another 5,000 lawyers could find themselves out of work next year as City law firms undergo a new round of swingeing job cuts, bankers close to the profession have forecast.

Royal Bank of Scotland, which handles the corporate bank accounts of 80 of Britain?s top 100 law firms, believes that the slump in demand for legal services will continue through next year, leading to further drastic cutbacks.

In a report obtained by The Times, RBS?s legal practices group said that the legal market would need to shrink by another 5 to 10 per cent next year if it was to return to the levels of profitability that existed before the financial crisis began.

A host of big firms have slashed their junior ranks this year, led by three of the City?s biggest firms. Allen & Overy cut 450 staff worldwide, while its ?magic circle? rivals Clifford Chance and Linklaters made more than 200 employees redundant in London alone. Headcount across the sector fell by about 15 per cent in 2008-09, RBS said.

However, the bank believes that there are still too many lawyers in the City relative to the reduced demand for legal services.

Many firms failed to react quickly enough to the downturn, perhaps underestimating its length and severity. Another wave of job losses is now likely as those firms adjust their headcount in line with lower work levels, RBS said.

That will lead to a fresh dent in profits at many firms. Partners? earnings at the firms worst affected by the crisis plunged by up to 50 per cent last year.

Jeremy Black, associate partner in the professional practices group at Deloitte, which audits many of the top law firms, said that profits would fall again at many firms next year.

?The majority of law firms have found the last quarter very tough,? Mr Black said.

RBS is forecasting that the legal market will remain sluggish until at least the end of next year.

Britain?s 100 biggest law firms employ about 49,000 lawyers.