A consumer being shown a car by a sales person.

New car sales predicted to fall 5% in 2017

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New car sales may have peaked in 2016, according to a report by research firm GfK which predicts that sales will drop by 5% this year.

The study describes 2016 as a "landmark year" for new car sales in the UK but says that 2017 looks set to end the post-recession climb in new vehicle sales.

Opening car doorJoe Staton, head of market dynamics at GfK, explained: "Our latest data shows that, certainly in terms of car sales, Britain's post-Brexit consumer boom shows signs of weakening in the face of higher prices and rising inflation."

The report highlights three particular challenges that vehicle manufacturers and retailers will need to manage:

1. The impact of Article 50, and the potential impact of Brexit on interest rates on loans: As a large part of the UK car market is funded by financing, the loss of 0% finance offers and overall APR increases could push more customers to hold off on buying a new car.

2. The new rates of vehicle excise duty due to start from April 2017: This will see many low emission models that are currently exempt becoming liable for the tax. An additional tax payable for five years post-purchase on vehicles over £40,000 may also lead some customers to downsize their purchases.

3. Rising prices: Many manufacturers are likely to increase the base costs of their cars to account for the weaker pound and higher raw material costs.

According to GfK, 79% of consumers believe that consumer prices in general have risen over the past 12 months, and 74% expect prices to rise in the coming 12 months.

The proportion of people earning more than £50,000 who reported an intention to buy a new car in the next 12 months dropped from 53% in January 2016 to 42% in January this year.

New car sales in the UK reached the highest level for 12 years in 2016, with a total of 2,692,786 new cars registered, up 2.3% on the previous year.

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