Inflation is in double digits, interest rates have risen for the tenth consecutive time and British enterprise is struggling to keep pace.
The International Monetary Fund revealed this week that it expects the UK economy to shrink by 0.5pc this year, making it the only country in the G7 to slide into recession.
It leaves DIY investors grappling with how best to safeguard their investments, amid volatile markets.
The answer, according to some analysts, is investing in cash-rich FTSE firms.
Companies with high levels of net cash are sheltered from the high refinancing costs that many businesses will face this year due to high interest rates, while also benefiting from interest income from cash held in company bank accounts.
John Moore, of wealth management firm RBC Brewin Dolphin, said: “Businesses that have maintained financial discipline could prove to be the big winners in their respective industries as competitors struggle in an increasingly difficult trading environment.”
However, large amounts of cash reserves are not always a sign of a healthy business. Investors must look at the broader business outlook as well as the amount the company holds in net cash, before they invest their money in a given share.
Jason Hollands, of investment platform Bestinvest, said carrying lots of cash can indicate an inefficient use of capital, which is a drag on investor returns. “It can also be a sign that the management of the business lacks confidence in the outlook and is therefore unwilling to deploy that capital elsewhere,” he added.
The Telegraph has picked out five firms for investors to consider.
Higher energy bills, the rising cost of ingredients and an uncertain retail environment saw this bakery chain’s share almost halve in 2022. But experts say the Newcastle-based company has proven it can weather the storm.
“The FTSE 250 baker recently demonstrated its resilience by reporting a rise in sales of 23pc in its financial year up to December 31 compared to the same period the year before,” Mr Moore said.
Going into 2023, Greggs has £191m in net cash on its balance sheet. “While a healthy cash balance will likely still be required to mitigate those issues, Greggs also has a great track record of investing in product innovation,” Mr Moore said.
Oli Creasey, of investment firm Quilter Cheviot, said: “If you want a company with a lot of cash and almost no debt on the balance sheet, then look no further than the UK housebuilders.”
Barratt, one of the largest housebuilding firms, ended 2022 with a significant £965m in net cash – representing almost one fifth of its share value.
Investors may be nervous about taking a punt on a property firm, and with good reason; Barratt itself has warned of a “marked slowdown” in the housing market.
But Mr Creasey said there are signs the market may not be as challenging as many believe. “Mortgage rates are falling from highs resulting from the disastrous Liz Truss government, and unemployment rate expectations remain fairly low.
“Meanwhile, housebuilder shares have priced in severe expectations (shares are down 40pc since 2021 highs), which may offer an opportunity to buy at a discount if the downturn is less bad than feared,” he said.
For a potentially recession-proof consumer staple stock, Mr Hollands recommended Smurfit Kappa. This FTSE 100 company specialising in paper packaging has a “return on capital employed”, or “ROCE” of 17pc. This is an indication of healthy profit margins.
“ROCE is basically cash earnings (earnings before interest and tax) divided by net assets (total assets minus current liabilities),” Mr Hollands said. “It is therefore an indicator of how efficiently a business uses its capital as opposed to its cash balance in isolation.”
Kainos, an IT firm based in Belfast, may have flown under the radar of many investors. But this fast-growing FTSE 250 stock is attracting analysts’ attention after posting strong results in 2022.
Kainos helps companies with digital transformation, a market it estimates to be worth £2.4bn in the UK. Mr Moore said one of the key attractions of investing in Kainos was its potential to “push into the attractive markets of North America and Europe”. International revenue now makes up a third of its overall income and is forecast to exceed £130m for 2022.
The company behind Warhammer has a cult following across the globe that may be about to grow stronger. At the end of last year the company struck a deal with Amazon for a TV series based on its universe of fantasy war game miniatures.
Mr Moore said: “The company has been a long-time City favourite, leading to questions over whether it could continue to deliver. However, it has managed to pleasantly surprise over and over again, and currently sits on a cash pile of around £71m, according to its last annual report.”