Good news - car market - bad news for the deficit

Good news in the car market but the higher level of sales will drive the trade deficit higher - no rebalancing on the road ahead. Download the file here.

The new 14 plates have been great for the car market. Registrations in March were 465,000, up by 18% on March last year.

UK car registration increased by 15% in the first three months of 2014. We forecast total sales of almost 2.5 million this year, returning to levels of sales, last seen in 2004 and 2005.

Production is forecast to increase to 1.6 million units following the increase to 1.5 million last year. A further increase to 1.7 million units, then 1.8 million units is expected by 2016. Good news? Of course.

But the majority of production is exported. Export sales may hit 1.3 million units in 2014, rising to 1.5 million by 2016.

As a result, imports will have to increase to 2.2 million units in 2014, rising to 2.4 million units by 2016. The trade deficit (unit sales) will increase to 0.8 million units, to the levels least seen pre recession.

The surge in car sales is a welcome demonstration of UK demand. As Mike Hawes, SMMT Chief Executive explains. “Given the past six years of subdued economic performance across the UK, there is still a substantial margin of pent-up demand that is contributing to a strong new and used car market.”

The pent up demand is to be unleashed. Remember we have over 31 million cars on the road in the UK of which over one third are over nine years old. Easy finance deals and advanced technologies make new cars cheaper to buy and to run. There has never been a better time to buy a new car. Let’s hope they don’t all rush at once.  That would create a traffic jam at the docks.

That’s another reason why we say the trade figures will continue to disappoint, and threaten the recovery, especially if the collapse in investment income continues. Download the short report here.

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