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Gold book forecast changes for the City Car and Supermini sectors

Customers who take our gold book residual value forecasting product, will see new forecasts in October for the City Car and Supermini sectors. These forecasts will be based on revised future market deflation assumptions for these sectors.

These sector reviews are the last of a 5 month cycle in which we have revised our sector and fuel type future market deflation assumptions, based on our latest forecasts for new car registration volumes, the latest UK economic forecasts, and our expectations for the future market dynamics of different fuel types.  Collectively these will determine the balance of used car supply and demand, which drives future market deflation/inflation.

We do not envisage revising deflation assumptions again in the short term, depending on the outcome of Brexit and any potential impact on the economy and car market.

In both the City Car and Supermini sectors we consider that over the next five years, overall registration volumes will continue to decline and there will continue to be a significant shift from diesel into petrol. Similarly, used demand will shift from diesel into petrol.

For used diesel cars, the change of supply and demand will balance out and so we are not changing our diesel deflation assumptions.

For used petrol cars, the balance will tip slightly in favour of less deflation than we had previously assumed, so in both sectors we are slightly improving our petrol assumptions, and the impact at 36/60k will be approximately +0.5% improvement (less deflation). It should be noted that although these sectors have displayed inflation of petrol values for the past year or more (particularly City Car), we consider this to be unsustainable and believe that a return to deflation is imminent. Historical cycles of inflation followed by deflation support this view, and we are already seeing evidence of inflation starting to fall away.

Fuller details of these deflation assumption changes, and the overall impact of the sector reviews on our forecasts, will be available in our October gold book editorial.

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