Junior lawyers at Allen & Overy (A&O) are to receive their second pay rise in six months after the City firm announced a new salary scale that will see newly-qualified solicitors take home £65,000 a year.

Recruiters predicted the move – that pitches A&O’s salaries above its City rivals – will open a new front in the prolonged and increasingly high-stakes price war for junior lawyers.

Clifford Chance, the world’s biggest law firm by revenue, increased its newly-qualified salaries to £63,000 this month, a move that was partly designed to match earlier A&O pay rises introduced last October.

Jonathan Field, a legal recruitment consultant at Shilton Sharpe Quarry, said: “The City is booming and everyone has to pay more to keep up but two pay increases in such a short time is setting the bar very high."

“A&O’s move will put huge pressure on other City firms to follow suit or risk losing their best talent at a time when there is already a shortage of skilled lawyers relative to the amount of work coming in,” Mr Field said.

David Morley, managing partner at A&O, called the pay rises “highly competitive” adding that the firm had enjoyed “an extremely busy year”.

In a statement, A&O confirmed that salaries would be increasing “by on average 18 per cent” although it declined to give specific figures.

City sources said newly-qualified lawyers at A&O would be offered salaries of £65,200 – above its magic circle and other UK rivals.

The latest pay rise pushes Allen & Overy into the territory of US law firms that typically offer between 20 and 40 per cent more than UK firms in an attempt to lure away skilled lawyers.

Chris Hickey, a legal recruiter at Robert Walters, predicted that several large US firms, whose London offices are enjoying a significant boom on the back of strong private equity and mergers and acquisitions markets, would also be forced to revise their salaries upwards.

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