Linklaters, one of the so-called "magic circle" of UK law firms, narrowly avoided overtaking rival, Clifford Chance, when it announced record turnover for the last financial year.

The firm announced a 15 per cent rise in revenue from £1.19 billion to £1.29 billion for 2007-08. Profit increased 15 per cent to £564 million, with the top equity partners earning an average of £1.44 million.

Simon Davis, managing partner at Linklaters, admitted that corporate advisory work - the firm's traditional strength - had declined in the second half of the year as a result of the credit crunch but said that the firm's expansion into new markets had compensated for the downturn.

Mr Davies said: "Our financial performance reflects the hard work and commitment of everyone across the firm in increasingly challenging economic conditions.

“Inevitably, we saw a decline in major deal activity in the second half of the financial year. However, demand for specialist and complex multi-national advice remained strong, and healthy growth in Asia, Emerging Europe, the Middle East and the US helped us to maintain a robust performance over the year as a whole."

Linklaters' results follow similarly impressive increases in turnover at the rest of the City's top four firms. For the first time, all have earned fee income in excess of £1 billion.

Clifford Chance remains the biggest, posting revenue last year of £1.33 billion. Freshfields Bruckhaus Deringer is third, at £1.17 billion, and Allen & Overy fourth, at £1.02 billion.

Their lead over the rest of the City is increasing and many smaller firms will fear it is now insurmountable. The next-largest firm after Allen & Overy, Lovells, reported revenue of £479 million, less than half A&O's figure.

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