By David Milliken
LONDON (Reuters) - British new car sales rose to their highest level since 2007 last year, bucking a weak European trend to grow by 10.8 percent on the year, industry data for the continent's second-largest car market shows.
Cheap finance was a major factor in helping to shift 2.265 million cars in 2013, the Society of Motor Manufacturers and Traders said on Tuesday, up from 2.045 million in 2012 and slightly beating its forecast for sales of 2.25 million.
It also said billions of pounds in compensation paid to consumers by banks for past insurance mis-selling had helped some car-buyers fund deposits.
Sales in December alone were 24 percent up on the same month in 2012, though the industry expects this rate of growth to slow sharply this year as sales plateau at levels close to those reached before the financial crisis.
The data caps a strong year for Britain's economy. The British Chambers of Commerce, which conducts the country's biggest quarterly business survey, said earlier on Tuesday that its latest figures pointed to 0.9 percent growth in the last three months of 2013 - potentially delivering the highest annual growth rate since 2007.
Car sales have grown strongly over the past two years after steep falls in 2008 and 2009, in a trend that pre-dated last year's rapid economic recovery. Britain overtook France in 2012 as Europe's second-biggest new car market after Germany.
"While the European market is only now showing signs of improvement, the UK has consistently outperformed the rest of Europe with 22 consecutive months of growth," said Mike Hawes, the SMMT's chief executive.
Car sales were helped by incentives in December, said Richard Lowe, head of retail and wholesale banking at Barclays.
He predicted a similarly strong start to 2104, but "a slower and steadier rate of growth over the course of the year when compared to the dramatic growth seen in 2013."
SALES GROWTH SLOWING
The SMMT sees modest car sales growth of 1 percent for 2014, saying new sales are now close to their long-run average, though at the start of 2013 it was similarly cautious about the coming 12 months.
"We expect new car registrations to remain stable in 2014 as customers return to a more regular replacement cycle," Hawes said.
Car manufacturing in Britain is likely to continue to increase, however, with the SMMT predicting that British car production will exceed the peak of 1.72 million cars reached in 1972 by 2017. Production data for 2013 are due on January 23, and will likely exceed 1.5 million for the first time in six years.
Suppliers are starting to find it easier to get finance for investment, though skills shortages remain a constraint, Hawes said. But he said the government should take care that its efforts to reduce Britain's budget deficit did not sap consumer demand.
Ford (NYS:F) was Britain's top-selling manufacturer in 2013, helped by its Fiesta supermini and mid-sized Focus models, followed by General Motors' (GM) rival Vauxhall Corsa and Astra. Volkswagen (VOW3.DE), Nissan <7201.T> and BMW (BMW.DE) also recorded strong sales.
(Reporting by David Milliken; Editing by Hugh Lawson/Ruth Pitchford)