Growth expectations have been slashed by the Organisation for Economic Cooperation and Development from 2.4% to 1.7% for the year (Chancellor Gordon Brown based his spending plans on a 3-3.5% hike), but with inflationary pressures rising, no interest rate cut is likely this year. In fact, at the October Bank of England meeting, a cut was not even on the agenda.
House prices drive the whole market; when they rise people feel more confident to spend on other large purchases, such as cars, holidays and home improvements. But after a long period of growth, prices stagnated over the summer, and in some areas they started to slip back.
According to SMMT figures, new car sales are down 5.2% so far this year. However, dealers say the situation is far worse, with thousands of cars being pre-registered as demonstrators to push up volumes for the carmakers.
This issue is no longer confined to the volume suppliers, with some premium brands accused of forcing cars through the network – look at the ones with the shaky monthly figures to work out the culprits. The only ones regularly resisting the temptation are the Japanese carmakers.
Inflation has started to inch up (the consumer price index rose from 2.4% in August to 2.5%) on the back of higher fuel prices, which puts more pressure on interest rates, cut in August from 4.75% to 4.5%. It might only take a small quarter point increase to push the economy over the edge.
So what for next year? Carmakers and dealers are downbeat, but one report suggests the economy could grow by just over 3% in the second quarter. BDO Stoy Hayward calls it a “healthy” outlook. The Nationwide building society, meanwhile, claims that house prices are starting to pick up again.
Given these developments, dealers should expect a revival in new car sales in the second half of 2006.