The market for new cars is to gradually slow during the course of 2005, with 100,000 to 150,000 fewer sales compared to 2004, according to Glass’s.

Glass’s has also stated that demand for used cars is faltering slightly and depreciation will continue on a downward trend, albeit at a slower rate than in 2004.

"With general inflation well below target and house price inflation subdued, it is widely believed that interest rates have now reached a peak," says Adrian Rushmore, managing editor at Glass's.

"Once consumers believe this, buying confidence will return in the early spring, although at a lower level than last year. That means the propensity to buy new and used cars may only be slightly down on what we saw in the last six months of 2004, although the market will be deprived of equity release from a lack of house price inflation."

Looking at the used car market, residual values will be affected by the improving availability of suitable stock on dealers' forecourts. "We have the inevitable legacy of rising new car registrations over recent years," added Rushmore.

"One consequence is that the number of three-year-old cars in the car parc will increase again this year, in the order of 80,000 units.

Because we believe that the natural retail demand will be slightly less, more buyers will only be found on the basis of lower prices. It is for this reason that residual values will continue to fall during 2005, but not to the same degree that we witnessed last year."