Consumers are paying almost the same for new cars now as they were a year ago, prompting warnings of a year-on-year increase in prices.

The latest Alliance & Leicester Car Price Index shows a drop of only 1.5% in October on prices paid for new cars - the smallest year-on-year fall in new car prices since July 2000. Figures earlier in 2001 had shown much bigger falls than in October- 3.1% in September and 5.6% in August.

Andy Bayes, senior marketing manager for personal loans at Alliance & Leicester, said: “This is the third consecutive month in which the annual fall in new car prices has decreased. If this trend persists, buyers will face the prospect of paying higher prices than last year and this would not be good news for motorists."

Prices for nearly new cars (one year old) and used cars (three years old) climbed year-on-year by 9.8% and 5.5% respectively. This compares with year-on-year rises of 3.9% and 2.0% in September.

The index shows that new car prices fell by only 1.5% year-on-year compared to a 3.1% fall in September. Family cars and compact executives demonstrated the only rise in the category (up 5.5% and 0.1% respectively) with MPVs once again showing the largest fall (6.4%).

Sales of new cars continued to soar with new car registrations by private buyers increasing 28.3% year-on-year to 91,150 sales in October. This has prompted the SMMT to revise its 2001 sales forecast upward to an unprecedented 2.38m registrations. Douglas McWilliams, from the Centre for Economics and Business Research, said: "Despite generally downbeat messages about the economy and signs that the edge is coming off the housing market, consumers still seem willing to make major purchases and the car market remains steady."

The nearly new market is remaining strong with the index revealing a 9.8% year on year rise compared to 3.9% in September. All categories except for MPVs, which fell by 9.3% showed a year-on-year rise in value with compact executives again demonstrating the largest rise (22.3%).

As with nearly new cars, prices for used cars (three years old) also climbed with the car price index demonstrating a year-on-year rise of 5.5% compared with 2.0% in September. Compact executives showed, on average a huge 10.9% year-on-year rise in value, with superminis (8.6%) and small cars (6.6%) also showing healthy rises.