British car production fell to its lowest level in more than a decade last year, weighed down by weaker sales and difficult trading conditions on European roads.

Factory production fell 7.2 per cent to 2.47m cars last year, the third consecutive annual decline as exports slump amid growing trade tensions between the UK and the European Union.

Government production figures are not adjusted for seasonal variations or timing of factory closures, but analysts said December was still the sixth-worst month since the monthly survey began in 1997.

Auto industry body the Society of Motor Manufacturers and Traders said a sharp drop in sales, including major reductions in purchases by customers in Germany and the US, “along with a raft of other factors” had knocked the sector.

Shares in Jaguar Land Rover, one of the world’s leading manufacturers, fell nearly 9 per cent as the annual drop in output raised fears of a production slowdown this year. The company has invested heavily in electric and self-driving technology to try to improve its long-term competitiveness, and it is among the main candidates to win the tender to build a new low-carbon nuclear power station at Hinkley Point.

The company said its worldwide production and sales for 2018 would result in a “show of strength and resilience in terms of our business performance and financial position”.

There is no sign yet that tariffs from the EU on imported steel and aluminium or potentially further trade wars with the US will affect the world’s biggest and fastest-growing auto markets, including India, Brazil and Russia.

Reasons for the slowdown in demand for British-made cars on the continent range from a downturn in the wider economy, a fall in consumer confidence and fears of Brexit, including the impact of a downturn in the value of the pound.

“There are many challenges, but the automotive industry’s focus remains on the future,” said Mike Hawes, SMMT chief executive. “We are investing in technologies that reduce CO2 emissions, improve fuel efficiency and reduce noise at the same time as developing cars for cleaner air and safer streets.”

Production in the UK was largely unchanged, at 847,300 units last year, the same level as the year before, the lowest level since 2007.

Mike Hawes, SMMT chief executive

Auto industry executives have complained that if the EU imposes tariffs on UK-made cars it will raise costs for consumers, with the cheapest UK-made models beginning to cost more than competitors’ equivalents made abroad.

Demand for UK-made cars outside the EU still rose 3.1 per cent last year, to reach 1.73m units. Much of that increase is down to China, the world’s largest car market, as well as the US and Mexico.

The industry’s biggest export market is Germany, with 38.6 per cent of all cars shipped from its plants there.

What went wrong? Following the boom in the industry over the previous decade, the slump in demand towards the end of 2018 was widely expected. Yet the extent of the fall in demand has dismayed many in the sector.

Auto analysts say fears of a fall in car prices and higher tariffs will only have a limited impact.