Firms just outside the top 25 are prospering more than anyone as fee income continues to rise across the upper echelons of the legal market.

The latest quarterly survey by Deloitte of the legal service market - covering the third quarter of 2011/12 - found strongest growth in the 26-50 rankings, where fee income grew by almost 10%. The top 100 reported their income rose by 7.2% in the three months to 31 January, compared with the same period last year.

However, the growth rate slowed since the second quarter, which reported 9.8% growth.

Looking over the nine months of the financial year so far, fee income has risen by 6.5%, a figure likely to remain steady in the fourth quarter.

The report says that given the rise in merger activity during the year, which boosts the overall growth rate, the underlying market growth will have been a little below this figure. Higher revenues were driven by an increase in fee-earner headcount averaging 5.2% and a 2.8% rise in chargeable hours per fee earner. Nominal fees remained in line with the same period in the previous year.

There is still a sharp disparity between firms’ performances. During the third quarter, a third of firms reported either growth above 18.5% or income decreases by at least 4%.

Jeremy Black, partner in Deloitte’s professional services group, said: ‘The overall sector has performed well in what have been very challenging markets. On average it is anticipated that the top 100 firms will grow by 6-7% for the year ended 30 April 2012.

‘However, the overall averages hide a wide disparity between firms, with performance increasingly dependent on firms’ practice areas and geographic footprints.

‘Litigation continues to perform well, whilst corporate revenues remain lacklustre. Furthermore, those with a presence overseas, particularly in Asia, are able to bolster their performance in light of a more stagnant domestic market.’

The report added that top 100 firms had, on average, budgeted for an increase of up to 5%, reflecting the concern they felt at the start of the financial year.