As legal demand in the UK market continues to recover, law firms and their corporate clients are facing additional challenges and opportunities around AI and ESG
Following a pattern set in 2022, corporate clients based in the United Kingdom started 2023 on a generally positive note, with nearly half predicting an increase in their legal spending at the end of the first six months, compared to one-quarter who were forecasting a spending dip.
However, according to the Thomson Reuters Instititute’s newly published 2024 Report on the State of the UK Legal Market, this net spend anticipation (NSA) fell sharply in the third quarter of 2023, before recovering to end the year on a much stronger note.
Driving this the Q4 recovery in demand included renewed spending on legal matters involving M&A and the financial sector; and as in previous years, London’s position as a global business centre means continued demand for cross-border legal advice. Alongside these opportunities, law firms serving the UK market must also be aware of clients’ priorities and expectations.
Despite the Q4 recovery, however, more volatility lies ahead.
Commerciality remains key, with emphasis on risk mitigation
The challenges for UK law firms remain largely unchanged: geo-political and economic instability, weak demand in certain sectors, increased competition, and cost pressures coming from clients.
According to the report, two-thirds of corporate clients said they have been under pressure to cut costs, with many bringing more legal work in-house or moving it to a lower-cost provider. Yet, the market remains sufficiently strong in the short term to hide the need for any radical change in the way law firms do business.
Yet, the report notes that opportunities for significant, and rather sudden, changes abound. Initiatives involving environmental, social & governance (ESG) matters, in all its variety, has appeared among the Top 5 strategic priorities for UK-based general counsel. And while it’s been important for their organisations as a whole in recent years, this is the first time we have seen it appear as a leading priority specifically for in-house legal teams. At the same time, the continued and rapid rise of artificial intelligence (AI) in the legal market presents even more emerging issues that law firms must navigate for themselves while simultaneously advising their clients on the potential advantages and pitfalls.
Artificial intelligence – clients are already ahead of law firms
The hot technology topic in 2023 was clearly AI and especially generative AI (GenAI). Indeed, the view toward AI is largely positive, with nearly two-thirds of UK corporate legal staff indicating that they feel positive about its impact. Interestingly, this was slightly more than law firms, which may risk being left behind by their clients, particularly when many (more than one-third of respondents) seem to think, incorrectly, that their clients would object to them using GenAI in their legal work.
And while GenAI may still be at a highly developmental stage, those law firms that do not take time to understand its potential impact — as a disruptive technology and a source of new business or greater productivity — will lose out not only to more forward-thinking legal competitors but to other professional advisers as well.
According to the report, two-thirds of corporate clients said they have been under pressure to cut costs, with many bringing more legal work in-house or moving it to a lower-cost provider.
In fact, C-Suite leaders report near universal intent to utilize GenAI in a wide variety of applications — and not just amongst the legal team — within their business over the next 18 months. However, they also saw many opportunities and challenges, around which they will certainly need advice and support.
The report also explores the potential for growth in legal spend by UK corporations, and what in-house legal teams are prioritising for 2024.
Among other key findings:
-
-
- The growing importance of commerciality and risk management
- Satisfaction levels with the performance and service of outside counsel have been dipping slightly
- Specialist knowledge is increasing as a key requirement for any law firm relationship
-
While UK law firms and their clients remain largely positive about the outlook for the market in the coming year, as the report finds, law firm leaders should be careful to avoid the complacency that can often accompany success.
You can download a full copy of the 2024 Report on the State of the UK Legal Market, here.
