New car registrations continue to boom despite slowdown in retail sales

Soaring car registrations provided fresh evidence of the consumer boom yesterday while better-than-expected producer prices figures indicated manufacturers are starting to increase profit margins.

At the same time, weaker retail sales figures for May indicated a possible slowdown on the high street.

New car registrations rose 5 per cent in May, the 20th consecutive month of growth, as consumers responded to low interest rates and more competitive prices. The surge was driven by private buyers, with sales up 13.4 per cent. Business demand was more sluggish with large fleet volumes cooling.

The 208,669 new car registrations represented the best May figures since 1989, according to the Society of Motor Manufacturers and Traders. Registrations for the year to date are now 8.2 per cent ahead of the same five-month period last year.

The British Retail Consortium-KPMG sales monitor showed sales in May were up by 2.7 per cent on last year on a like-for-like basis. This was in line with the previous month's 2.4 per cent rise, but well below increases seen earlier in the year when sales were up by as much as 7.5 per cent.

The BRC said the bad weather may have been responsible. But Bill Moyes, the BRC's director-general, said the "slowing" in consumer spending showed that the Monetary Policy Committee was right not to increase interest rates last week.

There was good news for the manufacturing sector as lower costs enabled companies to increase profit margins. UK producer prices in May showed output prices up 0.3 per cent, to stand up 0.1 per cent on the year. Input prices (costs) fell by a greater-than-expected 0.7 per cent in the month. Manufacturers were able to increase profit margins for the second consecutive month, rather than pass on the lower costs to customers in the form of lower prices.

John Butler, an economist at HSBC, said: "This is possibly a sign of increasing confidence within the manufacturing sector that a recovery is coming through." However, he said the figures were unlikely to pose any inflationary threat due to the excess capacity in industry around the world.