UK car sales to level off after hitting 10-year high

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By David Milliken

LONDON, Jan 7 (Reuters) - Britons bought nearly 2.5 million new cars last year, the most in a decade and almost 10 percent more than in 2013, as economic optimism and cheap finance cemented the country's position as the brightest auto market in Europe.

Sales should rise again this year, but much more slowly as pent-up demand starts to ebb and motorists face the risk of higher taxes after May's national election, an industry body said.

The Society of Motor Manufacturers and Traders said new car registrations totalled 2.476 million in 2014, up 9.3 percent on 2013, above the long-run average and the highest number since 2004.

"For the market as a whole, we expect a more stable 2015 as demand levels off," the SMMT said. Its chief executive Mike Hawes saw growth in 2015 of 2-3 percent.

"Current levels are hugely positive, and flat sales this coming year, or even a slight reduction, should still be seen as a positive position, and not a tale of woe," said David Raistrick, an auto industry specialist at accountants Deloitte.

Britain has the European Union's second-largest car market. Its biggest, Germany, recorded just 3 percent sales growth for 2014. The SMMT said it expected growth for the EU as a whole to be around 6 percent this year.

British car sales have been boosted by cheap finance, especially in personal contract plans that encourage buyers to trade in their cars every three years, as well as pent-up demand from lower sales in the aftermath of the financial crisis.

PRODUCTION LULL?

Ford had Britain's two best-selling cars with its Fiesta supermini and mid-sized Focus claiming first and second place, while General Motors (NYSE: GM - news) 's Vauxhall Corsa and Astra and Volkswagen (Other OTC: VLKAF - news) 's Golf made up the rest of the top five.

Hawes said he was concerned the fall in oil prices could encourage Britain's next government to raise motoring taxes.

While the governing Conservative Party has pledged not to raise taxes, Hawes said he believed any party would struggle to reduce Britain's large budget deficit through spending cuts alone.

Falling oil prices would reduce tax receipts from petrol sales, as did improved fuel efficiency, he said.

British car production figures for 2014 are due later this month. Hawes said they would show little increase from 2013, a result he described as "fairly disappointing".

Most of Britain's car production is exported, and demand in Russia and the euro zone was weak last year.

The SMMT forecasts British car production will hit an all-time high of around 2 million by 2017, surpassing levels last seen in the 1972, but Hawes said he was now less confident that this target would be met than he was a year ago. (Editing by William Schomberg and John Stonestreet)