UK car sales drop as diesel demand plummets for 14th month in a row

Economist warns May growth is a 'false dawn' as car prices continue to rise

Political and economic uncertainty is hampering car sales (Reuters)

UK car sales have dropped 7 per cent in the year to date, despite growth in the market during May, according to the latest figures from the Society of Motor Manufacturers and Traders.

SMMT blamed continued economic and political uncertainty for the decline in demand experienced in 2018.

New registrations were up 3.4 per cent year-on-year in May, although the comparison is somewhat skewed due to an 8.5 per cent decline recorded in May 2017 when demand was hit by vehicle excise duty claims and uncertainty around the June general election.

Demand for alternatively fuelled vehicles rose 36.1 per cent last month, with plug-in hybrid cars the biggest driver of growth, rising 72.7 per cent. Hybrids rose 22.6 per cent and zero emissions battery electrics were up 18.7 per cent.

Meanwhile, demand for petrol cars increased by 23.5 per cent in May, as diesel demand fell for the 14th month in a row, dropping 23.6 per cent.

“May’s growth, albeit on the back of large declines last year, is encouraging and suggests the market is now starting to return to a more natural running rate. To ensure long-term stability, we need to avoid any further disruption to the market, and this will require sustainable policies that give consumers and businesses the confidence to invest in the new cars that best suit their needs,” said Mike Hawes, SMMT chief executive.

Ian Gilmartin, head of retail and wholesale at Barclays corporate banking, said the increased demand in May was a “heartening result” for the sector.

“Comparisons remain difficult due to the weak figures posted in 2017, and the record-breaking numbers recorded a couple of years ago are firmly in the past, but it does look like we’re edging back towards where monthly sales should be,” he said.

“If the industry can continue to deliver modest growth in the next few months and close the gap on overall sales compared with last year, I think most sellers will be relatively content. Given the wider economic environment, double digit growth in private sales is pretty remarkable even when 2017’s weakness is taken into account.”

However, Samuel Tombs at Pantheon Macroeconomics said the numbers were a “false dawn”.

“Consumers’ confidence has begun to recover gradually, but households say that they intend to save more and are reluctant to make large financial commitments,” he said.

“Sharp increases in new car prices – up 4.2 per cent year-over-year in June, the largest increase since April 2010 – due to the weaker pound also likely will weigh on demand. Accordingly, we doubt that May’s rise in registrations marks the start of a sustained recovery.”