The UK's Society of Motor Manufacturers and Traders (SMMT) says that last week's rise in interest rates "will not help a weaker car market".

The Bank of England's Monetary Policy Committee hiked rates from 4.5% to 4.75%, the first rise in well over a year.

Car sales in the UK slumped 4.1% to 168,015 units last month while year to date sales were off 4.2% to 1,409,936.

SMMT chief executive, Christopher Macgowan said: "Consumer confidence has clearly taken a knock in the last 18 months and [last week's] announcement from the Bank of England will not help a weaker new car market.

"Two factors have kept some buyers away from showrooms this year. The first is the effect of interest rate rises, the second is soaring fuel costs. The latter affects 30m car drivers and is also driving more to consider the benefits of switching to diesel power when buying a new car."

Sales of diesel-powered cars were up 2.4 % 528,263units year to date.

The SMMT said the rate of decline in new car registrations has showed signs of slowing. Volumes over the past six months were down 2.9%, whilst over the latest three months they fell by a more modest 2.2%.

However, the year end forecast is for a market down by 4.5%, as higher interest rates and fuel costs continue to bite.

July sales of 168,015 were down 7,262 units compared to July last year, or 10,668 units - 6% lower than the 1995-2005 average for July.

It should be noted, though, that July traditionally was always a 'slow' month as most buyers held off for the new registration plate prefix released on 1 August. This 'year identifier' (changed in 2001 to two numbers in the middle of the plate) now changes twice a year on 1 March and 1 September.

Private buyer demand continued to slip in July, with volumes down 9.8% in the month and 5.2% over the year-to-date. Diesel demand from the private sector continued to buck the trend, up 5.2% from January to July, as consumers increasingly look to diesel's benefits to fuel economy as UK prices nudged the GBP1 a litre mark.

Year-to-date fleet sales volumes remained down on last year's level, accounting for 49% of sales.

As fuel costs rise and consumer confidence falls, the SMMT has revised downwards its year end forecast by 20,000 units to 2.33m new cars, off 4.5% on 2005. The 2007 forecast is unchanged, with a further dip to 2.315m units expected.

UK-built car registrations have fallen by 15.3% over the first seven months of the year and seen their market share slide two percentage points to 15.6%. This reflects slowing production at some UK plants feeding the UK market. Seven out of ten cars made in the UK are now exported.

The MPV (Multi-Purpose Vehicle or minivan) market jumped 17.2% in July as the segment leading, and recently revised, Vauxhall (Opel) Zafira featured made the top 10 best sellers list for the fourth time this year.

The supermini segment has seen market share grow over the year-to-date. Overall two in every three new cars leaving showrooms are either superminis or small family cars.

The Ford Focus held onto number one slot in both the month and year-to-date.

Diesel penetration hit 39% for the first time this year in July. The July market rose 5.9%, to help push volumes over the first seven months of the year up 12,170 units to 528,263 units, equal to a 37.5% market share, up from 35.1% a year ago. The Ford Focus remained the top selling diesel model in July and the year-to-date.

A new generation of highly efficient, cleaner diesels, which have better fuel economy and lower CO2 emissions, are helping drive demand, the SMMT said.

Alternative fuelled vehicles (AFV) have seen a further hike in 2006 registrations, on the back of new models. Three all-electric cars were launched at this year's motor show and petrol-electric hybrid car registrations have risen by 55% in the first seven months of the year, from 3,427 to 5,315 units.

While smaller diesels, biofuel cars and hybrid sales are booming, the market for gas powered cars continues to decline - down 90% over the year-to-date. The decline coincided with the collapse of government PowerShift grants in 2004 and the failure to implement any replacement scheme.