Despite today's announcement from the SMMT of a big rise in car sales in October, consultants at Deloitte have cautioned that there is a 'perfect storm' of challenges brewing for the UK automotive sector in 2010.

As October's new car registration figures have risen by 31.6%, marking this year's biggest monthly increase, David Raistrick, UK Manufacturing Leader at Deloitte commented: "This is wonderful news for the automotive sector and proves that the scrappage scheme has met expectations in terms of stimulating demand for new cars.

"While the industry celebrates this good news, there is a 'perfect storm' on the horizon where the automotive sector will be affected by a combination of factors that could come into play in Q1 next year.

"Within a short period of time we will see the scrappage scheme end and the VAT rate return to 17.5%.  Meanwhile the government's proposed show room tax of £950 per vehicle could be implemented in March and interest rates may also increase in this period. Furthermore, car manufacturers may find themselves needing to implement price rises due to the low value of sterling increasing the cost of imported cars and parts.

"At a time when the industry is showing promising signs of recovery, it is important the sector does not lose sight of the challenges ahead in 2010."

See also: UK: New car sales up 32%