SOARING petrol prices may be to blame for falling sales in the new car market after predictions of a slight recovery were dashed last month.

The nine per cent sales drop was so sudden and spectacular that official forecasts for the full year have been revised down - for the second time - by the Society of Motor Manufacturers and Traders (SMMT).

Officials believe many motorists have been forced to rethink new car purchases after petrol broke through the psychologically important £1-a-litre barrier.

Ford and Vauxhall continue to dominate the best-sellers list. The new Focus and the Astra were at numbers one and two, closely followed by their smaller cousins, the Fiesta and the Corsa.

According to statistics gathered by the AA, the price of a litre across the country is averaging 97p, but in many places it is already £1 or more. Fuel has gone up by 13 per cent in the past year alone.

And a recent survey conducted by YouGov showed that people had started cutting back on car use because of the cost of fuel.

According to Ray Holloway, director of the Petrol Retailers Association, this move to shorter and fewer journeys has yet to translate to a fall in volume at the pumps. But it will.

A recent study found that for every ten per cent rise in the price of a gallon, the volume of petrol fell by six per cent - although it usually took several years for the effect to be seen.

Officials also believe the rising cost will have benefits as well as drawbacks for the car industry.

If prices continue to soar, the industry believes there will inevitably be a move to smaller, more fuel-efficient cars. That is why the SMMT predicts the diesel share of the overall new car sales market will reach 40 per cent by the end of the year.

Petrol reached its peak in 1990. Ever since, demand has been on a steady decline. At the same time, diesel has seen an almost identical increase.

It is also good news for those car manufacturers, such as Toyota and Honda, that had the foresight to invest in alternatives to petrol, such as electrically-powered hybrids. Demand for cars like the Lexus RX400h - a large 4x4 with the fuel economy of a family hatchback thanks to electric motors - is soaring, with a waiting list for keen owners.

Honda recently introduced a hybrid variation on its popular Civic range, even though that car already has a very fuel-efficient diesel model in the line-up. These days, it is great to be green.

The Government probably won't be too unhappy with the slowing growth in car sales.

If drivers are spending more at the pumps, they have less in their wallets for luxury items. High fuel prices dampen consumer demand and help keep a lid on inflation.

One other interesting statistic buried in the latest sales figures reveals that the percentage of new cars that were built in the UK has fallen to an all-time low.

This was a consequence of the collapse of MG-Rover last year and will accelerate when the Ryton plant in Coventry ceases production of the Peugeot 206 next year.