UK legal sector sees strong growth but AI puts pressure on hourly billing system
The legal sector in the UK continues to outperform despite challenging market conditions but the uncertainty around cyber attacks could impede firms’ strategic objectives.
According to the PwC Law Firm Survey 2025, the Top 10 law firms have reported UK fee income growth of 8.1 per cent, compared to 5.2 per cent across all international regions. However, the report noted that the average rate of growth within each band has slowed compared to 2024.
The Top 10 refers to the ten largest UK-headquartered law firms ranked by global revenue.
Top 10 UK law firms saw profit per equity partner (PEP) rise 5.4 per cent to £1.8m, maintaining sector lead. The PEP at firms in the Top 11-25 increased over 4 per cent to £1.04, and those Top 51-100 firms increased the most at 5.5 per cent to £595m.
However, the Top 26-50 firms saw a decrease of 1.6 per cent to £635m.
The firms in the Top 51-100, as highlighted by PwC, led the way on growth over the last year, as those firms reported an increase in fee income of 11 per cent and an increase in net profit margin of 1.1 per centage points to 24.6 per cent.
The profitability trends further underscore the differences between these groups.
The Top 10 firms, as highlighted by the report, successfully converted fee income gains into profit growth, with net profit margin improving by 0.6 per centage points to 37.4 per cent. While the Top 11–25 firms have struggled to keep pace, their average net profit margin has declined by 0.3 percentage points to 25 per cent.
The financial pressures of competing with larger firms and the costs associated with international expansion are clearly weighing on profitability.
AI accelerate shift away from hourly billing
The legal industry has been busy adopting new technology, particularly Gen AI which is likely to drive a pivotal shift from traditional hourly billing as client frustrations continue to grow.
Over the last year, the report noted the average hourly rate at a Top 10 firm was £496, followed by £336 at a Top 11-25 firm, £289 at a Top 26-50 firm and £262 at a Top 51-100 firm.
However, looking ahead, the report said, “there is likely to be a pronounced shift away from traditional hourly billing towards fixed-fee arrangements”. Approximately two-thirds of the Top 100 law firms anticipate that AI adoption will result in financial challenges, including downward fee pressure.
Lucy Robson, tax leader of law firm advisory group at PwC UK, said: “The UK legal market continues to display resilience, with many firms achieving growth in fee income and net profit. However, the sector faces challenges such as slowing growth rates and pricing constraints.”
However, despite this drive in AI and the concerns over pricing, it is the uncertainty over cyber attacks that was consistently cited as a threat across all segments of the Top 100.
Over 90 per cent of law firms said they are either extremely or somewhat concerned that cyber risk could impede their ability to achieve their strategic objectives over the next one to three years.
Mark Anderson, global business services leader at PwC UK, added: ”This year’s survey paints a picture of a global legal market navigating a complex landscape marked by regional disparities, in an unprecedented period of cyber-attacks and macroeconomic uncertainty.”