The hawks at the Bank of England predict economic output will shrink by 11 per cent this year, the worst annual collapse in growth for 300 years, beating the fall during the First World War.
The Old Lady also warns another one million jobs will be lost, taking unemployment to around 2.6m over the next six months.
Yet here is the puzzle. If corporate life is so miserable why are some of Britain’s best-known companies being gobbled up by foreign buyers and private equity firms at the rate of knots?
Frightening forecasts: The Bank of England warns another one million jobs will be lost, taking unemployment to around 2.6 million over the next six months
Over the last few days, we have seen the biggest bid of the year from Canadian and Danish insurers for RSA, one of Britain’s oldest insurance companies, valuing it at £7.2billion.
Canada’s Intact Financial and Denmark’s Tryg are offering a 48 per cent premium to break-up RSA based on Thursday’s price – and a 20 per cent rise on its pre-pandemic value.
Premier Foods has sold Hovis to Endless, a British- run private equity group, after only a month of the 134-year-old baker being up for sale.
Endless was not the only suitor: Newlat Foods, the Italian Buitoni pasta brand, and Epiris – which recently bought Bella Italia and Café Rouge – were also sniffing around.
There are also bids for Urban & Civic, the property developer, and Sportech, the betting technology firm.
This fresh takeover frenzy follows on from several bids over the last few months: Canada’s Garda World is bidding for G4S, the UK’s troubled security group, while Caesars Entertainment has taken a £2.9billion punt on William Hill.
So what’s going on? And why are UK companies so attractive to foreign suitors and private equity houses? Panmure Gordon’s chief economist, Simon French, has three persuasive answers to the puzzle, one of which will be painful to Brexiters.
First, he says UK companies are some 20 per cent undervalued to their global equivalents, particularly their European peers.
French blames this on the uncertainty created by years of wrangling with the EU over reaching a deal, wrangling which has kept international investors away from the UK markets because of the political risk.
Since 2016, the FTSE All Share Index is down around 20 per cent compared to the Eurostoxx 600.
Second, Britain has a permissive approach to foreign bidders. This ease of access makes it easy for predators to get control of British listed companies compared to those in the US, or indeed, on the Continent.
Despite attempts to strengthen our takeover rules, the signs are that we will continue to open our arms and welcome them coming.
Take the case of Nvidia’s bid to take Arm Holdings away from Softbank. The Government is still ruminating over whether to refer to the Competition and Markets Authority or not.
Yet there is plenty of evidence to support the view that Nvidia’s ownership would be harmful to Arm, its customers and also national security.
But there is still no peep from No 10 – supposedly obsessed about building up UK tech giants – about whether it is to be blocked. Why not?
The third reason is cheap money, giving bidders the oil with which to grease their takeovers.
While this also applies to companies worldwide, in the case of the UK, cheap finance means predators can take advantage of the first two reasons more easily.
If French is right that UK companies are undervalued because of political risk, then the reverse is true.
Once we do agree an FTA – which looks more likely than not by the end of the year – then stock markets should bounce back.
Then comes the difficult bit: picking the winners.
Going long on Tesla
One canny investor with the nose for a winner is the Scottish Mortgage Investment Trust. Along with excellent half year results yesterday, the trust gave a fascinating explanation of why it is keeping its 12 per cent share stake in Tesla, and why over the long-term the electric car company – despite its ups and downs – will be a big beneficiary of the global drive towards electrification.
To date, the trust’s faith has paid off. Having invested in Tesla in 2013, it has sold over 40 per cent of its shares raising over a £1billion in the process. By contrast, the trust has sold out of Facebook and is scaling back on Amazon.
A wise move if the Democrats get to reform the tech giants.
There have been other winners: furniture retailer, Wayfair, and food delivery companies Meituan and Delivery Hero. Its own shares have had a stonking year, up 86 per cent.
Maybe they are still worth a bet too?