New car sales in Britain fell by more than 3% last month, reinforcing the sense of gloom enveloping the retail sector.

They slipped from just under 195,500 in May 2004 to 187,900 last month and are down more than 6% on the year to date, though the five-month tally still tops the million mark. Diesel-powered cars continue to increase their market share - accounting for almost 37% of the cars sold - the 56th month in a row that diesel cars have increased their share of the UK market.

Despite the downbeat mood among consumers Christopher Macgowan, the chief executive of the Society of Motor Manufacturers and Traders, said sales remained within sight of last year's near-record levels.

"The industry is proving resilient as it rides out weakening consumer confidence and the short-term problems associated with MG Rover," he said.

The collapse of MG Rover continues to distort the UK market, according to the SMMT. In May - the first full month since the company called in administrators - MG sold 160 vehicles in the UK and Rover 154. That compares with the near 6,000 MG's registered in March and the 6,600 Rover sales that month, the last before the administrators were appointed in early April.

More than 10,000 MG Rover cars were left in limbo by the collapse until new financial arrangements were hammered out between the dealers and Capital Bank which provided the financing for the cars.

According to Richard Cort, the chairman of the MG Rover dealers' association, the sales figures for the cars "were nothing to do with the consumer. The consumers have confidence in the cars but the cars have been stuck in compounds".

The two sides reached a deal last month, though a legal agreement has still to be drawn up, and Mr Cort said he expected the backlog of unsold cars to start reaching dealers within the next week to 10 days.