The number of cars manufactured in the UK fell 3% over 2017, with the bulk of the fall coming from slowing domestic demand, according to the Society of Motor Manufacturers and Traders (SMMT).

While the 1,671,166 cars built in the UK was still the second biggest output since the turn of the century, the SMMT noted this was approximately 130,000 units below its mid-year forecast.

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Just 336,628 cars were made for the domestic market in 2017, almost 10% less than in 2016. The SMMT blamed a combination of declining business and economic confidence and confusion over government’s policy on diesel.

The export market fared better, though still shrank by 1.1% over the period to 1,334,538. This meant almost 8 in 10 cars built in the UK were destined for foreign shores. Over half of all cars exported were made for the EU (53.9%), with the US a distant second with 15.7% of the orders.

In brighter news, the SMMT noted exports to Japan had grown by 25% while exports to China and Canada both grew by almost 20%.

Overall, the SMMT said the significant decline in production underscored the importance of government and industry working together to ensure the right conditions for the sector.

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Mike Hawes, SMMT chief executive, said: “The UK automotive industry continues to produce cars that are in strong demand across the world and it’s encouraging to see growth in many markets. However, we urgently need clarity on the transitional arrangements for Brexit, arrangements which must retain all the current benefits else around 10% of our exports could be threatened overnight.

“We compete in a global race to produce the best cars and must continue to attract investment to remain competitive. Whilst such investment is often cyclical, the evidence is that it is now stalling so we need rapid  progress  on trade discussions to safeguard jobs and stimulate future growth.”