Freshfields Bruckhaus Deringer, one of Britain's oldest law firms, yesterday called a ceasefire in a pay war in which starting salaries for City lawyers have risen to more than £90,000.

The “magic circle” firm informed staff that their pay would be frozen at current levels until 2010, while salaries for newly qualified solicitors would be cut from £66,000 to £59,000.

It is the biggest pay cut at a large British law firm in decades, recruiters said, and shows how desperate even the magic circle is to reduce costs as fee income plummets. The move also brings an abrupt end to a frenzied bidding war that resulted in inexperienced, twentysomething lawyers commanding salaries of up to four times as much as newly qualified teachers.

Rapid expansion by many City firms, combined with poaching of staff by investment banks and American law firms expanding into Europe, pushed starting rates to more than £60,000 at the top firms. Those at the London office of Sullivan & Cromwell, the blue-chip Wall Street firm, were the most handsomely rewarded, earning £97,500 a year.

Junior lawyers could then expect startling pay rises for their first three years, in addition to generous bonuses, with many earning more than £100,000 after less than five years out of law school. However, their prospects are no longer nearly so bright. Other firms are almost certain to follow Freshfields' lead either by freezing pay or cutting starting rates, or both.

Tim Jones, Freshfields' London managing partner, said the move was the key plank in a cost-cutting drive that also included reducing expenditure on travel and conferences. “This is an appropriate and proportionate response to the world we now find ourselves in,” he said.

Scott Gibson, a director of Hughes-Castell, the recruitment agency, said that the freeze was understandable but surprising: “It's a brave move to be the first firm to announce this. It shows how serious this market is.”

Law firms' fixed costs, notably people and rent, are few in relation to other businesses, but their lockstep, or hierarchical, salary structure means it can be difficult to reduce costs quickly in the event of a downturn in revenue. A sudden decline can leave an exponentially larger hole in partners' pockets - hence the frantic attempts in recent months to reduce expenditure on salaries.

More than 3,000 salaried lawyers have been made redundant, with even the biggest firms, Clifford Chance and Linklaters, making swingeing cuts. Yesterday, Lovells, the City's fifth-largest firm, became the latest, with 94 jobs at risk including support staff.

Freshfields has not yet followed its rivals in cutting either partners or junior fee-earners, partly because it underwent a traumatic £40 million overhaul two years ago. However, the firm was reviewing the situation and could not rule out redundancies in future.

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