Recovery is in sight for the used car market, according to Cap Monitor, which believes the dust is settling on the new car pricing 'dispute'.

But, Cap warns, the damage done to used car values by last year's price row will take time to reverse.

The value of three year old cars will be hit by a further 4% to 6% reduction during 2001, although this is a marked improvement on last year's 8% decline.

Ramesh Notra, Cap senior economist, said: "The slump in used car values last year cost every car owner dear, leaving many vehicles worth less than the finance owed on them. The main cause was lack of retail demand because the new car price dispute destroyed buyer confidence in the entire market.

"Cuts to new car list prices are now restoring that confidence and recent months have seen customers returning to forecourts. "A strong start to the year is crucial for RVs to stabilise, but this must also be maintained in the coming months. It was from April to July last year that values plummeted, reversing gains made in the first quarter." With a positive economic outlook likely to boost disposable incomes in the UK, renewed sales activity should continue to support values. "RVs should begin to actually increase in the second half of 2002," Mr Notra said.