PRICES of three-year-old cars increased 4% in February compared with a year ago, according to the latest Alliance & Leicester Car Price Index. Compact executives showed the largest single rise, 4.2%, and MPVs suffered the largest fall, dropping 11.3%.

Meanwhile, prices for one-year-old cars remained firm, falling by 1.6% year-on-year in February compared with 1.7% in January. All categories of car fell year-on-year - MPVs suffered the largest fall at 12.2% - except for compact executives and upper medium sector models, which rose by 5.2% and 0.7%. Douglas McWilliams, of the Centre for Economics and Business Research, said: 'Since October new car prices have been virtually flat at the new levels established after the car companies cut their prices, but the trend in used car prices is very different.

'The level of used car prices bottomed out in July and they have been rising ever since. With the used market making adjustments after a year of dramatic falls, the depreciation gap between new and used cars is narrowing.'