Car market at ten-year high

SALES of new cars have soared to the highest level for nearly a decade, in another boost to the British economy.

The Society of Motor Manufacturers and Traders (SMMT) said 1,287,265 new cars were sold in the UK in the first six months of the year. That was up 10.6pc on the first six months of 2013 and the best half-year total since 2005.

‘Improving economic conditions have helped propel the UK new car market to a strong first half-year performance,’ said Mike Hawes, SMMT’s chief executive.

Record low interest rates, a recovering economy and rising employment have given consumers the confidence to buy more big ticket items. But sluggish wage growth could be a challenge, particularly if interest rates begin to rise from the current level of 0.5pc.

The Bank of England has indicated this could happen as soon as this year. Howard Archer, chief UK economist at IHS Global Insight, welcomed ‘another very impressive month of car sales’.

But he added: ‘One concern for car manufacturers is that current muted earnings growth threatens to be a constraint for car sales.’

The pace of growth slowed to 6.2pc in June from 7.7pc in May and 8.2pc in April.

Hawes said: ‘Key to attracting new customers is the ever-improving efficiency of new cars. The overall market has risen faster than we were expecting but growth is showing signs of stabilising.’

Bank of England officials will meet next week to discuss the possibility of higher interest rates, having held them at 0.5pc since March 2009.