UK auto market 'cooling' as consumer confidence declines

Britain’s automobile market cooled as car registrations were flat and demand from private consumers fell in July, suggesting a decline in consumer confidence, according to a leading business lobby group.

Car registrations in the UK increased modestly, by about 0.1%, in July, according to the Society of Motor Manufacturers and Traders (SMMT).

Sales of automobiles grew 0.06% year-on-year to 178,523 units as business demand for fleet vehicles rose by 5% in July, offsetting the drop in demand.

SMMT chief executive, Mike Hawes, said, “after a healthy start to 2016 and record registrations in 2015 the market is showing signs of cooling.”

Private new car registrations fell 6.1% year-over-year in July, the fourth consecutive annual - marking the longest such streak since June 2011 -, below the +6.1% average growth rate seen over the previous twelve months, which suggested consumers were retrenching.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “July’s decline in private car registrations provides more evidence that the credit-driven boom in vehicle sales has run out of gas”.

Uncertainty about the economic outlook after the EU referendum was making “consumers cautious to purchase big-ticket discretionary items” such as a car, he said.

Tombs added: “The stabilisation of unsecured borrowing costs, after several years of sharp declines, also has sapped growth in car sales of momentum. A modest reduction in the Bank of England interest rate today likely won’t reduce unsecured borrowing rates further, because lenders will price-in a higher probability of borrower default as the labour market weakens.

“Meanwhile, with consumers’ real incomes set to come under pressure next year as higher import prices drive up inflation, sharper falls in car registrations likely lie ahead”.

Hawes urged the government to support automobile demand and instill consumer confidence.

“The automotive market is a vital part of the British economy and it’s important government delivers the economic conditions which instil business and consumer confidence. With low interest rates, attractive finance options and exciting new models coming to the showrooms, the market still has lots to offer customers,” he said.

SMMT also said demand for alternatively fuelled vehicles, such as electric cars, remained strong with 24.7% more registrations compared with the same month last year.