The legal sector’s much-touted contribution to the UK’s trade in services fell sharply last year, amid growing domestic competition from foreign firms.

Figures from the Office for National Statistics show that the net contribution of legal services to the balance of payments deteriorated by over £500m, or 15%, from £3.36bn in 2011 to £2.85bn in 2012.

The legal sector’s positive contribution to the balance had increased for each of the previous nine years, from £1.5bn in 2002. As law firm exports edged up 2% to £3.9bn, 2012’s drop reflects more intense competition from foreign firms in the home market.

A Law Society spokesman said: ‘An increase in imports of legal services from overseas-based law firms has led to a small reduction in the net trade contribution of the sector, although our contribution remains strong relative to other comparable sectors such as accountancy.’

Accountancy’s positive contribution has fallen each year since 2007.

Mark Hatcher, the Bar Council’s director of representation and policy, said: ‘Legal services has experienced challenging market conditions since the onset of the downturn, with the result that the sector’s significant  contribution to UK GDP over the past few years has been uneven. These conditions are unlikely to improve in the short term, while the eurozone economy remains weak and global growth is sluggish.’

The financial crisis provided London with a one-off boost, Serle Court barrister Khawar Qureshi QC, chair of TheCityUK Legal Services Group, noted, causing ‘a spike in UK-based commercial litigation and arbitration from 2009-2011’.

He added: ‘The legal market internationally is increasingly competitive and we must be able to adapt at all times as well as address  potential threats to London’s competitiveness.’