Car production is up for a fourth month

Nearly 37,500 more cars rolled off British production lines last month than in February 2009, the fourth successive monthly rise.

Commercial vehicle production increased even more sharply, shooting up by 74 per cent to 10,226 vehicles in February, reflecting the gradual return of business confidence. Engine manufacture also rose, increasing by 59 per cent to 198,807, the Society of Motor Manufacturers and Traders (SMMT) said yesterday.

But the improvements in Britain's recession-hit automotive industry are still fragile. The recovery is being boosted by foreign exchange fluctuations and the tail-end of scrappage incentives schemes both at home and in Europe. But it must be bolstered by the longer-term product investment, the SMMT is warning.

"Sterling movement has made UK-built products more competitive, enabling the UK to work through challenging economic conditions," Paul Everitt, the chief executive, said. "British-built engines and vehicles are exported to over 100 markets worldwide, offering some resilience to local market conditions."

The impact of next week's Budget will be vital in establishing the stable economic climate needed to foster confidence and encourage much-needed long-term investment. "The fourth month of consecutive growth in new car production is encouraging," Mr Everitt said. "But manufacturers and government need to work together to ensure that there is continued investment in new products and technology to sustain future growth."

The vast majority of vehicles made in Britain are for export. But production is not the only part of the industry showing signs of recovery. Car sales are also on the rise. Registrations shot up by 26 per cent in February, the eighth monthly rise in a row, with sales to private buyers jumping by 70 per cent compared with the year before.

Despite the material improvements in both the retail and manufacturing businesses, experts are forecasting another tough year. The SMMT is predicting just 1.8 million car sales in 2010 – 7 per cent fewer than last year and way below the 2.15 million sold in 2008.

Part of the problem is scrappage. Sales numbers were propped up through the second half of 2009 by the Government's £2,000 incentive, which will end this month. And manufacture was boosted by similar schemes in European markets. With such schemes now ending, the car business faces a bumpy landing.

But the real issue is over-capacity. Despite significant cuts, Europe's car industry has side-stepped some tough decisions thanks to a stream of government interventions to save jobs. Even with the recovery, that excess capacity will need to be cut back.