Fuelling the increase are expected record registrations this year and the fall in the value of sterling against the euro that has impacted on manufacturer revenues.
Average retail prices for new cars in the UK rose 4.9% during the 12 months to July 2004. The PricewaterhouseCoopers and eurocarprice.com Index of New Car Prices also shows that average retail car prices in the UK last month were 3% higher than the average for western Europe and 5% higher than than the average for the euro currency zone.
The index is based on data from JATO Dynamics and measures the retail price (the price published by the manufacturer inclusive of taxes) of more than 40 representative cars in 19 European countries. In the last 12 months, the average retail price of a car in western Europe has risen by 4.2%.
The strongest movement in retail car prices was in Denmark where prices rose by 7% during the 12 months to July. The weakest price movement was in Hungary where retail prices decreased by 3.2%.
The current trend is for European retail car prices to rise more quickly than a year ago.
The average pre-tax price of cars in the UK (converted to euros) rose 3.1% in the 12 months to July. Pre-tax prices in the UK are 8% higher than the average for western Europe and 10% higher than the average for the euro currency zone.
Pre-tax car prices in the whole of western Europe rose by 1.9% in the year to July.
The lower medium segment of the market showed the largest increase in average pre-tax prices in western Europe during the 12 months to July: 8.9%. The weakest segment was the mini segment, where prices rose by 1%. Average price movements in the main volume segments were:
Lower medium: 8.9%
Upper medium: 4.7%
By manufacturer VW, Mercedes, Fiat and Peugeot priced below the market average, but only the VAG group increased market share. Renault and BMW recorded the highest price rises - and enjoyed market share increases. Citroen recorded the third highest average price rise, but also suffered the highest loss in sales volume and market share. Vauxhall and Ford increased prices by 2.7% and 2.51% - more than the market average. Ford lost market share but enjoyed increased volume because of the growing market.
Robin Goodyer, operations director of eurocarprice.com, said: "The trend to fashionable SUVs and MPVs continues to influence average prices upwards as these cars are generally more expensive than their more traditional alternatives.
"Compared to last year, volumes in the executive, small MPV and small SUV segments are up by 0.5% across Europe while mini and upper medium volumes have declined by 1%.
"During the last month the average prices within three new EU entrants, Poland, Hungary and the Czech Republic, have increased relative to the Euroland average"
"This movement is due to vehicle pricing in Hungary and positive exchange-rate movements of the local currency versus the euro in Poland and the Czech Republic."