Car sales rose by 29% in January compared with the same month last year, according to figures released by the Society of Motor Manufacturers and Traders (SMMT).

There were 145,479 cars registered last month as the government's car scrappage scheme continues to have a positive effect on the industry.

The scheme, which pays motorists £2,000 to trade in an old car for a new one, accounted for almost one in five car sales in January. New car sales have now increased year-on-year in each of the past seven months.

The government recently announced that the car scrappage scheme is to be extended for a further month. It was due to finish in February, but the subsidy will now run until the end of March, although no extra funds will be provided.

The government said the extension would give manufacturers and dealers more time to prepare for and operate the exit phase of the scheme.

Despite the encouraging figures, the SMMT predicted a difficult year ahead for car manufacturers, due to the ending of the scrappage scheme and the difficulty of accessing finance.

"Industry expects another difficult year, with the availability of finance, consumer confidence and sustaining demand post-scrappage key to performance in the second half of the year," said the society's chief executive Paul Everitt.