UK car production rebounded in August, helped by recovering domestic demand, industry data released on Wednesday showed, though an escalating trade dispute with the European Union could weigh on the sector's longer-term prospects.

The Society of Motor Manufacturers and Traders (SMMT) said UK car output rose 5.7% in August to 40,872 vehicles. August is typically a low and volatile month for production because factories shut down as planned.

The SMMT said more than £1 billion of investment committed by companies including McLaren, Nissan and Bentley was an important indicator of the sector's strong long-term outlook.

However, the trade body reiterated its concerns about the EU's proposed "Made in Europe" provisions, saying that excluding the UK from the policy's scope would pose an "existential threat" to British car manufacturing.

Mike Hawes, chief executive of the SMMT, said: "The UK and EU automotive industries are highly integrated, so effectively excluding UK-built cars from their largest market would inevitably leave both sides worse off." He urged both sides to agree on a practical solution that safeguards shared competitiveness.