The new car market fell by nearly 10% last month, with sales of diesel cars down by a fifth, industry figures show.
Growing uncertainty over Brexit is believed to have fuelled the fourth consecutive month of decline in sales of new petrol and diesel cars.
But sales of alternatively fuelled vehicles rose 64.9% in July, giving them a record market share of 5.5%.
Just under 162,000 new cars were registered in July, down 9.3% on the same month last year, according to the Society of Motor Manufacturers and Traders (SMMT).
Some 1.56 million new cars have been sold so far this year, a decrease of 2.2% on the same period in 2016.
Registrations of new diesel cars fell 20.1% in July, with petrol models down 3%.
SMMT chief executive Mike Hawes said: "The fall in consumer and business confidence is having a knock-on effect on demand in the new car market and Government must act quickly to provide concrete plans regarding Brexit."
Ministers last week announced a clean air strategy to ban the sale of diesel and petrol cars by 2040 as part of plans to meet legal European Union limits on harmful nitrogen dioxide pollution.
They are also considering funding measures to cut pollution with a tax on new diesel vehicles.
Mr Hawes said: "While it's encouraging to see record achievements for alternatively fuelled vehicles, consumers considering other fuel types will have undoubtedly been affected by the uncertainty surrounding the Government's clean air plans."