The new market: Forecasts

Every quarter, we combine our proprietary market insights with the latest car registration data to create three scenarios which forecast the industry’s performance for the next 12 months. These include an upline, baseline and downside scenario, each reflecting different macroeconomic, policy and industry conditions that could shape the outlook for the remainder of the year. Together, these scenarios provide a structured framework to help stakeholders plan for the possibilities that may unfold in the year ahead. 

Our baseline scenario, which is most likely, forecasts that we will reach 2,084,477 new car registrations in 2025, representing 5.7% year-on-year growth. This is a modest increase on the forecasts we released earlier this year due to the improved performance seen in Q1 2025. Reflecting a steady, cautious recovery of consumer confidence, this outcome is balanced with ongoing challenges facing manufacturers due to the Zero Emission Vehicle (ZEV) mandate. While the forecast growth is a positive signal for the market, it must be viewed within the broader market context that registrations still lag behind historical norms. If the market achieves this benchmark this year, it will be 9.8% below the 2000-2019 average.

*Actuals

Upside Scenario

In this optimistic scenario, the UK economy rebounds strongly in the second half of 2025, supported by improving macroeconomic conditions and a more stable automotive market. With a clearer policy landscape and growing consumer financial confidence, the industry benefits from a healthier balance of supply and demand. The continued growth of new market entrants also contributes to a more resilient and profitable market. 

The key factors that influence this scenario are:

• The Bank of England’s quicker-than-expected series of interest rate cuts revitalise consumer and business sentiment, pushing inflation below 3% and unlocking more household spending power. 
• The recent updates to the ZEV mandate bring renewed confidence to the market and relieve some pressure on manufacturers. Dealers benefit from improved visibility and profitability, especially across the electric vehicle (EV) and hybrid segments.  
• New market entrants, particularly Chinese brands, gain momentum in the market and increase healthy competition, rather than displacing legacy brands, which instead focus on innovation and adaptability to retain a strong presence in the market. 

Baseline scenario

In our moderate baseline scenario, the UK automotive market remains on a steady path to recovery. The market exceeds the 2 million car registration milestone, supported by cautious confidence from both consumers and businesses. However, ongoing domestic and global economic volatility continues to present challenges that dampen any hopes of rapid growth. 

The key factors that influence this scenario are: 

• Gradual reductions in the Bank of England’s base rate and greater stability support modest economic growth. This creates a cautiously optimistic climate for both consumers and businesses, helping to steady demand and support recovery in the new car market. 
• Structural and regulatory challenges continue to influence the pace of recovery. Uncertainty surrounding the long-term outlook for the ZEV mandate and ongoing concerns around commission disclosure create further complexity for the market. 
• New market entrants continue to grow in the UK, albeit at a slower pace than in our upside scenario. Over time, they begin to gain share from legacy brands, gradually reshaping the competitive landscape. 

Downside scenario 

In a downside scenario, the UK automotive market faces a stalled rate of recovery. An ongoing lack of clear industrial strategy, slower-than-anticipated interest rate cuts and intensified pressure on manufacturers from emissions regulation deadlines and trade tariffs create a volatile environment for the industry. The market struggles to regain momentum, and registrations remain subdued throughout the year. 

The key factors that influence this scenario are: 

• Persistent high inflation, compounded by a prolonged cost-of-living crisis, squeezes household budgets and erodes consumer confidence. Discretionary spending remains limited, reducing retail and fleet demand and weakening recovery. 
• The ZEV mandate fails to provide the clarity and incentives required to accelerate adoption of EVs. This delays necessary infrastructure investments and dampens dealer profitability, hindering the UK’s transition to electric transport.
• New market entrants struggle to gain meaningful traction as brand recognition and consumer trust prove difficult to establish. Meanwhile, legacy manufacturers continue to lose market share without robust alterations to product strategy. 

Reviewing our previous forecasts against the actual total new vehicles registered in Q1 2025, our baseline forecast was 93% accurate. Looking at our monthly forecasts, the January forecast was 100% accurate.