Fleets are being warned rental rates will continue to rise.

Short-term rental has become a more attractive means of sourcing vehicles as companies look to protect themselves from dramatic falls in residual value or from entering more expensive contract hire terms.

"The rental industry is bracing itself and its customers for change,” warned Lorraine Farnon, Europcar  UK group sales director.

“While we are seeing an increase in rental business from some sectors, fleet managers should be aware that prices are likely to rise across the industry unless the current economic situation does not improve.”

She said falling demand for new cars, higher import costs and declining used car values are “forcing motor manufacturers to become much more disciplined about the way in which they will work with rental operators”.

Some manufacturers, she warned, may step away from the rental market altogether.

Others she said will want more control over the value at which their vehicles are being sold, so “may decide to reduce the volumes through these agreements”.

“When you take all this into account then consider the proposed tax changes that come into effect next April - road fund tax (VED), first registration fee and capital allowances - the rental industry in the UK is facing an immense challenge to contain costs”.

She said rental companies will need to take a consultative approach with customers to find ways “to mitigate cost increases which now seem inevitable”.