Sales of new cars increased by almost a third in January as drivers scrambled to take advantage of the Government's scrappage scheme.

The Society of Motor Manufacturers and Traders said 145,479 cars were sold last month, up 30% on the same month last year.

The scrappage scheme, which gives buyers a £2000 discount if they trade in an old car, accounted for a fifth of sales.

The £400 million scheme runs out at the end of March.

Mike Steventon, partner at KPMG, said: “The car scrappage scheme has recently ended in Germany and new car sales in January fell to the lowest level in 20 years.

“It is highly likely that UK new car sales will also experience a significant reduction following the end of the scrappage scheme. UK car retailers should brace themselves for a bumpy road ahead.”

The SMMT said the increase in sales, the seventh monthly rise in succession, came despite the rise in VAT and disruption caused by the cold snap.

It warned demand for new cars would fall by 9% to 1.82 million this year.

SMMT chief executive Paul Everitt said: “The industry expects another difficult year with the availability of finance, consumer confidence and sustaining demand post-scrappage key to performance, but signs of recovery are encouraging.”