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As financial analysts and everyday citizens around the UK – and the world – anxiously look for signs of economic recovery, news that new car sales have dropped for the first time this year is sure to raise concerns. According to the Society of Motor Manufacturers and Traders, or SMMT, there were 136,446 new car registrations in the month of July. This number represents a 13.2% drop from the same period in 2009. However, there are many possible reasons for this drop – and not all of them are dire in nature. Like anything else, this latest data should not be viewed as a strong sign of economic fragility; rather, it should be taken into consideration along with many other factors.

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There are many very clear reasons for the drop in new car sales in July. The most significant reason concerns the car scrappage scheme that ended in March. The scheme, which began in May of 2009, is believed to be responsible for the purchase of approximately 330,000 new cars. As the scheme expired, analysts expected to see a drop in new car sales. Another reason for the drop concerns consumer confidence. People are understandably concerned about the state of the economy; many of them are unemployed or eking out a living through payday loans. Such individuals aren’t keen on the idea of making big-ticket purchases – and new cars fall into that category.

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The outlook for car sales in the UK remains foggy. According to IHS Global, consumer confidence is expected to decline even more in the upcoming months. However, a rise in the VAT that is expected in January 2011 might spur some people to hurry up and buy new cars. That possible surge could offset the decline in consumer confidence enough to mute its impact considerably. As always, though, there is no surefire way to predict how all of these elements will impact new car sales – or the economy. By the end of the year, though, it’s predicted that approximately 2 million new cars will have been sold – and that’s something to cheer about.

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For the 18th month in a row, the Monetary Policy Committee, or MPC, have decided to hold interest rates steady in the UK at 0.5%. This decision has been largely praised by financial analysts who don’t believe that inflation is a major concern at this time. For the average UK citizen, who is probably relying on payday loans a lot more than he should be, this news isn’t going to have a major effect on everyday life. However, its longterm implications could be significant. Still, analysts hope that keeping interest rates low will spur additional economic activity that will help speed up economic recovery. Will it be enough? Given many other factors, the answer to that question is far from certain.