Slowdown in new car sales suggests UK economy may be losing a key driver

Old Car

The growth in new car sales in the UK slowed to 2.4% year-on-year in May, according to industry figures. This would seem like a respectable figure if it was not for the double-digit growth that has characterised the last couple of years.

Car sales have boomed during the recovery. Like smartphone purchases and hotel bookings, the improving figures for the manufacture and sales of cars have been one of the main props of Britain’s post-crash boom.

But when 10%-plus growth is the norm, 2.4% is like hitting a wall.

Looking at the month-on-month data is always dangerous when it is skewed so much by the biannual registration surges. That said, there is a clear downturn in sales growth when the 7% rise from April to May (185,778 to 198,706) is compared with a 9% rise in the same period last year (176,820 to 194,032).

An even clearer picture is provided when the 2.4% annual figure is compared with last March, when car sales were racing along at an annual rate of 17.7%.

The organisation that represents car financing businesses reports a record May for the number of car deals, but all this appears to show is the increasing trend for more and more sales to be financed with debt rather than cash.

Analysts remain optimistic that growth will continue, albeit at a lower rate.

Howard Archer, chief economist of IHS Global Insight, said: “While new sales growth slowed to 2.4% year-on-year in May, this was still a highly respectable performance. With car sales having now risen for 39 consecutive months, the gains are now coming from a high base.”

Samuel Tombs, UK economist at Capital economics, said the low oil price and rising household incomes would continue to fuel the industry.

But without last year’s stellar car sales growth, the UK economy is losing a key driver of the recovery. It doesn’t matter that sales now stand at a level last seen in 2005. Something else will need to pick up the slack or consumption growth over the coming months will be weaker.

Maybe it will be exports that will grow, especially to the rest of the EU, which is beginning to find its feet. The pharmaceutical industry could recover after a few years of declining manufacturing output. Or maybe the energy industry will bounce back from its oil-price induced slump. Without another large-scale industry firing on all cylinders, GDP figures could remain lacklustre

• This blog has been corrected. Original figures supplied by the Society of Motor Manufacturers and Traders suggested that sales rose from 146,820 to 194,032 between April and May last year – a rise of 31%. The SMMT later said this was a mistake, correcting the April figure to 176,820.

Powered by Guardian.co.ukThis article was written by Phillip Inman Economics correspondent, for theguardian.com on Thursday 4th June 2015 16.52 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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