Fitch Ratings says that during the first half of 2008, simultaneous increases in inflation and interest rates had a negative impact on the performance of consumer ABS transactions within certain jurisdictions.

Combined with the generally reduced availability of consumer credit, Fitch expects such trends to place increasing pressure on the performance of consumer asset-backed securities (ABS) transactions in the near term. The impact is expected to be most pronounced in the UK, Spain and, to a lesser degree, Italy, but negative rating action is expected to be confined to junior notes.

In a special report Fitch warns that highest-cost unsecured debt is one of the most vulnerable areas in the event of a deep or prolonged recession. This will negatively impact performance of UK credit card and some auto ABS.

"Although the UK credit card and German auto loan/lease ABS sectors appear vulnerable to a significant recession, rating actions are likely to be confined to junior tranches," says Philip Walsh, Head of ABS and RMBS for EMEA at Fitch. "In particular, auto transactions with a high residual value component could be challenged by declines in used car prices. Meanwhile, the junior notes of all Fitch-rated UK credit card transactions are already on Negative Outlook, reflecting the deteriorating performance in that sector."

Fitch notes that UK credit card deals are to an extent protected by originator capacity for re-pricing to protect excess spread.