The transactional nature of the London Law Firms means that activity here acts as a good barometer into confidence in the economy. Increases in Law Firm hiring typically can be directly linked to greater demand for their services, either from the Banks, on the one hand, or the Real Estate sector on the other. Therefore the fact that over the last three months, vacancies have been higher this year, than in both 2022 and 2023, is a positive sign, reinforced by a general consensus that the UK economy is performing better than many anticipated, which is reflected in GBP strengthening.

Looking ahead, proposals by the new Government regarding Tax on the one hand and Employment law on the other, are also likely to lead to Law Firms being busier than usual. Already there are rumours of individuals looking to accelerate liquidating their assets to minimize their CGT tax bill, whilst with the changes in employment law, the proposed changes are likely to be heavily contested. For example, part of the new deal is to enshrine hybrid working rights, except when it is not reasonably feasible. That begs the question, who determines whether it is reasonably feasible? And then what? For companies, the safest option will be to rewrite employment contracts to protect themselves meaning this is likely to be a busy time for the Law Firms once the final provisions are confirmed.

The other factor worth mentioning is the rise in GBP versus the dollar. Insofar that the US Firms have always paid more than the Magic Circle, the fact that compensation for associates in US Firms has been set in US Dollars, at a time when the USD has been at relative highs against GBP has acted to accentuate the salary differential. For context, last October, the forex was 1 GBP to 1.2 USD at one point, meaning a package of 500,000 USD would pay 417,000 GBP. Now the forex has shifted to the point 1 GBP is currently 1.35 USD and the forecast is for it to climb further to 1.4 USD. In that instance, that same Lawyer, would see their 500,000 USD package, be worth 357,000 GBP. A significant dip. Meanwhile UK Firms have been boosting salaries themselves, meaning the differential is narrowing significantly. For example, in May this year Linklaters boosted NQ pay by 20%, in a move to head off their talent being poached.

Looking ahead though, everyone is jostling for position amid signs the M&A market is starting to pick up again. In a recent report by PWC, insofar that deal volumes were 20% lower in the first half of the year compared to 2023, Deal values increased by 66% in the UK, which was in contrast to the global trend. Just as importantly, PE Firms are going to start to feel the pressure to divest their investments, as on average over 50% of holdings have now been held for over 4 years. PE Firms that effectively liquidate and deliver a return, will be in prime position for when they raise for their next fund. As interest rates fall, expect this trend to accelerate.