Uncertainty over the country's withdrawal from the European Union means it is unlikely the UK will meet its ambition to produce 2m vehicles annually by 2020, according to the SMMT's chief executive Mike Hawes.

Hawes said that output was already showing signs of slowing down with production in June down 13.7% at 136,901 vehicles, the third consecutive month of decline resulting in a year-to-date dip of 2.9%.

On the bright side, following a reasonably strong first quarter, the performance is still the second highest for 12 years.

Exports remain strong with 78.9% of production being shipped abroad. Vehicles heading across the Atlantic to the US are up 3% with Honda's Civic and Jaguar Land Rover models performing particularly well although China was down 6.4%. Shipments to the EU, the UK's largest export market remained stable but with uncertainty over Brexit, independent analysts commissioned by the SMMT believe these will slow as will UK production.

Hawes said: "Analysts suggest production could reach 1.9m by the end of this year although I am a little more cautious. Further ahead, the long term target of 2m by 2020 may now be in doubt. Brexit uncertainty is affecting investment planning. Unless we can secure some interim arrangements on trade we could miss the target by as much as 10%."

Asked if he thought BMW's announcement that the new electric Mini will be produced at the company's UK plant in Oxford, was an encouraging sign, Hawes said the move did not involve a massive investment as it involved a model variant – with electric powertrains coming from Germany.

He added, however: "If BMW had not made that decision it would have been more damning. What the industry needs is more clarity on trading relationships as it relies on frictionless trade, integrated supply chains, customs union and access to talent. It is also vital that regulations for homologation remain standardised.

"The government does recognise the importance of the sector and is in listening mode but we need to understand what the proposals are and how the government will square the circle when we leave the EU."

Hawes maintained that the UK auto industry has an important role to play in the EU because it is the most productive in Europe and has an established supply chain.

He added: "The more certainty we have we will be able to reassure investors."

While exports remained healthy – the highest for five years at 683,826 in the first six months - demand from the home market declined -9.5% to 182,830 units.

The SMMT does expect a second half rally based on some new models and updates planned for production later this year, many from premium brands, helping cement the UK as the world's second biggest producer of premium cars after Germany.

See also: UK car output down 14% in June