UK car sales to slow, market to shrink - Toyota

* UK car sales to slow after a strong start to 2010

* Fleet sales reduced by 25 pct to protect from strong yen

* Plug-in Prius UK launch by 2012, fuel cell hybrid by 2015

By Kwok W. Wan

LONDON, June 21 (Reuters) - The British car market is expected to slow for the rest of the year and annual sales to shrink marginally, offsetting a strong start to 2010, the head of Toyota UK (7203.T) said on Monday.

The Japanese car maker also said the new Plug-In hybrid Prius car would be launched in early 2012.

"Now the whole market is going back to normal. What is normal? It's the state of the market before the incentives kicked in," Toyota UK Managing Director Miguel Fonseca told reporters, referring to the government's scrappage scheme.

Toyota forecast UK sales of 1.95 million, slightly down from 2 million last year, with the market reacting reasonably well to the end of the scrappage scheme that offered 2,000 pounds ($2,966) for trading in an old car for a new one. The scheme ended in March.

"The number of vehicles sold in the first four months were stronger than expected and the last eight months will be slightly below initial expectations. We saw a big distortion because of scrappage," he said.

He said the slowing market included the effects of the budget expected to be announced on Tuesday, which would likely hit public spending and consumer confidence.

The company also said it reduced fleet sales by 25 percent in response to a strong Yen eradicating profit margins.

"As a result of that, we've decided to reduce our efforts in certain fleet sectors, mainly large fleets and the public sector to preserve our bottom line and have a healthy operation in the UK and in Europe," Fonseca said, adding it was slightly ahead of plan in regards to sales volume.

Toyota's UK car production is also expected to slightly exceed last year's 127,390 unit output, helped by the start of Auris hybrid car manufacturing at its Derbyshire plant, he said.

Toyota also expected to launch its Plug-In Prius in the British market within the next 18 months.

"We don't have a price yet for the Prius, but in 12 months time we should know because we'll be six months from commercialisation in the UK," Fonseca said.

The new Prius will be part plug-in battery, which needs to be charged via a power point, and part hybrid engine, which can be run by petrol.

A fuel-cell hybrid could arrive by 2015. A fuel-cell converts other types of fuel, such as hydrogen, into mechanical energy.

($1=.6743 Pound)

(Editing by Erica Billingham)