New car sales jumped by 32 per cent in October as buyers rushed to take advantage of the Government’s “cash-for-bangers” scheme and beat a January increase in VAT.

The leap in sales was the biggest year-on-year increase this year and the fourth consecutive monthly increase in sales.

The vehicle scrappage scheme, introduced in May, accounted for a fifth of new car purchases, according to the Society of Motor Manufacturers and Traders.

About 168,942 new cars were registered last month, up from 128,352 the year before, as sales of vehicles to private buyers increased by 86 per cent to 89,532.

However, sales of fleet cars decreased by 2 per cent to 74,445 because company cars are rarely old enough to qualify for the government scrappage scheme.

Only cars that are at least ten years old can be traded in for a £2,000 discount on a new model.

Last month’s increase followed rises of 11.4 per cent in September, 6 per cent in August and 2.4 per cent in July, as the scrappage scheme gathered momentum.

The scheme had looked likely to run out this month but it should now last through to the beginning of next year after the Government extended it towards the end of September by injecting a further £100 million.

This has brought its total investment to £400 million.

Howard Archer, chief European and UK economist at IHS Global Insight, said: “While the further pick-up in car sales in October was clearly driven primarily by the scrappage scheme and a desire to beat January’s VAT hike, it may also be a sign that a significant number of consumers have greater scope and willingness to step up their discretionary spending.

“This is due to their purchasing power being lifted by sharply reduced mortgage interest payments, lower utility bills and a moderation in inflation.”

However, demand for new cars over the first ten months of the year remains 12.3 per cent, or 236,790 units, down on last year.

A spokesman for the RAC said: “While the figures are encouraging, we shouldn’t get too carried away just yet. The acid test will be how sales react when VAT goes back up and the scrappage scheme ends.

“The real worry is that car sales will dip once again once the crutch of financial incentives are removed.”

Separately, insolvencies among UK car dealers have doubled this year, according to a report by Ernst & Young, the consultant and accountant.

Insolvencies among franchised dealerships jumped to 24 by the end of August, compared with 12 in the January-August 2008 period, according to the report.

Ernst & Young said that although the success of the Government’s scrappage scheme would help the motor industry through the worst of the economic crisis, the most promising indicator of a recovery in new car registrations was likely to be a return to GDP growth.

Toyota in the black

Toyota, the world’s biggest carmaker, unexpectedly returned to quarterly profit after “cash for clunkers” incentive schemes in America and Europe and ferocious cost-cutting (Leo Lewis writes).

However, Toyota quashed any premature optimism about the US car market, where conditions were still “very severe”, the company said, and where it is trying to limit damage from a recall of three million vehicles.

Despite quarterly profits of 21.8 billion yen (£145 million), Toyota still expects a loss for 2009, but it has more than halved its loss forecast to Y200 billion.

Explore Industry Sectors

• Need To Know

• Banking & Finance

• Construction & Property

• Consumer Goods

• Engineering

• Health

• Industrials

• Leisure

• Media

• Natural Resources

• Public Sector

• Retailing

• Support Services

• Technology

• Telecoms

• Transport

• Utilities

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive