The number of UK law firms reporting growing fee income has reached its highest point since 2008, an authoritative market survey has revealed. 

The annual PwC survey published today found 80% of firms increased revenue in 2013/14 - with more two-thirds of them achieving rises above inflation.

In contrast, in 2012/13 just 63% of firms increased fee income and of those less than half exceeded inflation.

PwC's report cites the economy's return to growth and merger activity in the legal sector as key reasons for the upturn.

Top 10 firms recorded their highest ever net profit margin at 40%, with firms in the top 11-25 reversing a five-year trend to increase their profit margin to 28.2%.

But the survey also revealed a noticeable gap between actual and target hours recorded at partner and trainee level. This would appear to indicate that spare capacity remains within firms.

David Snell, partner and leader of PwC's law firm advisory group, said: 'A degree of stability and confidence is returning to the legal sector. Corporate activity has re-ignited, with a corresponding uplift in transactional work, and firms are busy again.

'Notwithstanding this atmosphere of cautious optimism, the environment facing UK law firms remains fluid and challenging. Mergers and acquisitions, alternative business models, talent wars and data security threats are just some of the issues that this year's survey brings to the fore.'

The survey found the vast majority of firms to be increasingly confident of achieving growth over the next three years, with particular confidence in firms ranked 26 to 50.

International expansion and the potential for mergers are also identified as key priorities.

The report notes that with the pickup in market activity, a shortage of talent is an emerging concern for many firms. However, most predict they will cut the number of secretaries and support staff they employ.

Women still account for only 17% of the full equity partner population in top 10 firms and 15%  in top 11-25 firms.

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