Car manufacturers drive to record sales of 2.5 million, fuelling fears of boom and bust

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The Independent Online

The motor industry will today heighten fears that Britain is in the grip of an unsustainable consumer boom by announcing that new car sales rose to an all-time high last year of almost 2.5 million.

The motor industry will today heighten fears that Britain is in the grip of an unsustainable consumer boom by announcing that new car sales rose to an all-time high last year of almost 2.5 million.

Figures from the Society of Motor Manufacturers and Traders (SMMT) are expected to show that registrations leapt by 11 per cent to a new record of about 2.46 million, helped by an unprecedentedly strong car market in December. Following last week's warning from the Governor of the Bank of England, Edward George, about soaring high street spending and rising house prices, the new car sales figures make another cut in interest rates even less likely.

Some economists believe that, on the contrary, there is a slim chance of an increase in rates when the Bank's Monetary Policy Committee meets next week. The car market was already guaranteed to hit a new peak in 2001 after sales for the first 11 months surpassed the previous record of 2.31 million registrations for the whole of 1989. But demand in December has proved even more buoyant than the most optimistic industry forecasts with registrations rising by an estimated 17 per cent, taking the total for the month to between 125,000 and 130,000.

The surge in car sales has been driven by huge demand from private motorists who, for the first time in three decades, accounted for half the total market last year. A combination of lower prices, cheap finance and the large number of new models introduced last year have brought private buyers on to the forecourts in huge numbers.

Last week, the CBI reported that consumers embarked on their biggest spending spree in December since the height of the Lawson boom of the late 1980s. Figures from the Nationwide Building Society, meanwhile, showed house prices accelerating again to end the year 13.8 per cent up on 2000.

The buoyant car sales figures will add to fears in the Bank that an unsustainable and inflationary consumer bubble is developing, which may have to be pricked through higher interest rates.

The SMMT believes that the market will begin to cool this year with registrations falling by around 9 per cent to their level two years ago of 2.2 million. But the huge surge in sales in December, traditionally a quiet month for the car market, suggests that the boom has not yet begun to run out of steam.

The record level of car sales contrasts with a sharp escalation in the losses of domestic car manufacturers – underscoring the two-speed nature of the UK economy. Combined losses in 2000-01 more than doubled to £1.7bn.

Although UK car production is forecast to rise from 1.6 million last year to about 1.8 million this year, losses are expected to remain at high levels because of the strength of the pound which makes exports to the Continent from UK car plants unprofitable.

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