A combination of weakened consumer confidence and a fall in the pound will contribute to a sharp fall in new car sales in the UK, global trade credit insurer Euler Hermes has said.

Despite the Brexit vote earlier in 2016, the overall new car market continued to grow in September, driven by fleet sales. The private sector witnessed a contraction.

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Now Euler Hermes has predicted that overall new car sales will fall by 9%,or 205,000 vehicles next year, to 2.4m vehicles.

Part of the reason for this is a depreciating pound causing a volatility in prices. Yann Lacroix, sector advisor at Euler Hermes, said: ““Around 59 per cent of vehicle components for the UK automotive industry are imported from Europe, so it will be necessary to follow the sterling/euro exchange rate in the coming months to determine the potential impact of recent volatility on input prices and margins.

In contrast, the insurer predicted sales will remain flat across the EU. While much of the post Brexit vote has focused on the challenges the UK market now faces, Lacroix pointed out it would also be in the EU’s interest to fashion an amicable agreement for Britain’s exit: “No doubt, the automotive industry will be reliant on an aggressive post-Brexit industrial policy to ensure competitiveness. That said the dependence between the UK and the EU automotive markets is mutual. Many will be hoping for a favorable gentlemen’s agreement for both parties in any upcoming Brexit negotiations.”

Britain wasn’t the only European country which Euler Hermes predicted would see a fall. The company also predicted the end of Spain’s old car scrappage scheme could lead to a double digit decline in sales.

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