The sector, whose sales were up 4.6% last year and 38.8% in December, recorded another massive year-on-year increase in January of 31.6%, information provider JATO Dynamics says.
A spokesman said: 'The indications are that the recent introductions of new entrants the VW Touran and Ford C-Max, plus a new-generation Renault Scenic, are expanding the segment's share of the market and eroding the lower-medium segment in a sustained way.'
The company found that the lower-medium category's decline of 9.5% in 2003 continued in January, with a fall of 8.9% over the same month last year, despite the recent introduction of a new-generation Golf.
The upper-medium segment, it adds, is mirroring this sustained downward trend, with 2003's 10.3% decline followed by one of 8.23% in January.
It found that top seller for the month was the VW Golf, ahead of Peugeot's 206 and 307. VW was also the leading brand, ahead of Renault, Ford, Opel/Vauxhall and Peugeot.
A spokesman said: 'Most segments that show significant decline or growth have continued the trends established during 2003. Where this was not the case it is likely to prove to be an anomaly owing to a new significant model introduction temporarily increasing volumes, or simply the unpredictability of a start-of-the-year market in a still-uncertain economy.'