The slump in new car registrations slowed to an annual fall of 15.7 per cent in June after the Government’s scrappage scheme boosted demand for vehicles.

In May, output fell by 43 per cent, with a 55 per cent annual decline recorded in April.

The Society of Motor Manufacturers and Traders (SMMT) said today: “We are now beginning to see the positive impact of the scrappage scheme translate into new vehicle registrations."

Registrations of new cars fell to 176,264 units in June, according to figures released by the SMMT. The decline was the smallest since July 2008, although year-to-date demand fell 25.9 per cent.

Consumers tended towards buying smaller, less expensive cars, the SMMT said. Ford's Fiesta was the best-selling model for a fifth time this year, and the mini part of the market soared by 145.4 per cent in the month.

The SMMT forecast in April that registrations would fall to 153,000 units. It said that there would be a time lag before the full positive impact of the scrappage scheme was seen.

"SMMT expects the pace of improvement to increase in the coming months, but we can already see the industry making steady progress on the long road to recovery", said SMMT Chief Executive Paul Everitt.

Under the Government's scrappage scheme, consumers are offered a £2,000 discount, half by the industry and half by the Government, to scrap vehicles more than ten years old.

Some have criticised the UK scheme, saying it is not as generous as plans devised by other European countries. In Germany, where consumers are offered an entirely state-funded incentive of €2,500 (£2,100) and can scrap cars that are nine years old, a 14.2 per cent deficit was turned into a 21.5 per cent growth in sales.

The car industry is likely to use the SMMT figures to call for an extension of the UK scheme.

However, Lord Mandelson, the Business Secretary, ruled out an extension to the scheme beyond its scheduled deadline on February 28 next year or when the £300 million funding runs out.

Lord Mandelson said: “We must allow the scheme to take its course but then it will be back to normal.

“It is a one-off and anyone who wants to argue that will have to take on the Chancellor of the Exchequer.”

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