Car sales in Britain could be set for another record year as new registrations exceeded expectations and reached a historic peak last month, it emerged yesterday.

Heavy discounts, including the 0% financing imported from the US, helped sales in July rise 0.6% on last year to a record 196,762 vehicles. A similar record was set in June.

The booming car market, outpacing the housing market where first-time buyers are at a historic low, is helping British manufacturing recover but is prompting renewed concerns about consumer spending.

Christopher Macgowan, chief executive of the society of motor manufacturers (SMMT), said: "We now expect the year to close just under the 2002 total, at 2.52m units, making 2003 the second highest year on record."

Sales last year were 2.56m but the first seven months of 2003 have seen them running slightly ahead of the 2002 level, with the outcome for the full year dependent on sales in September.

Next month, which traditionally accounts for 16-18% of annual sales, should see 420,000 new registrations, SMMT economists said. They expect overall sales to slow down towards the end of the year.

Smaller cars, known as superminis, are providing the main source of growth but BMW, which launches its new 5 series in the UK next month, said it is on target to break its sales record of last year.

The German group's Mini, produced in Oxford, achieved an 80% increase in sales last month to 4,282, giving it 2.2% of the market - its highest yet. BMW said one person in 50 buying a new car is choosing a Mini.

Even MG Rover, once part of the BMW stable, enjoyed a 5% sales spurt in July, but its overall market share, at 3.8%, remains stuck below the critical 4% level. Big gains were registered by Porsche, Toyota, Subaru and Kia.

· DaimlerChrysler said it had sold a record 108,800 Mercedes and smart roadsters last month, driven by its E-class and S-class saloons and helped by the UK and US markets, with a 26% increase in the US.