News updates from October 14: Truss ditches UK corporation tax plan after sacking chancellor, US bank reporting season kicks off

The UK prime minister’s U-turn on corporate tax is likely to leave a black hole of several tens of billions of pounds in the public finances, economists warn.

Liz Truss said on Friday that she will revert to an increase in the corporate levy to 25 per cent, as announced by Rishi Sunak and the previous government and added that public spending will increase “less quickly than previously planned”.

Paul Johnson, director of the Institute for Fiscal Studies, wrote on Twitter that spending “can’t increase much less quickly without actually going down”.

Torsten Bell, chief executive of the Resolution Foundation, a think-tank, said that “the last two weeks have seen the announcement and unravelling of the worst unforced error in British economic policymaking for generations”.

The prime minister on Friday sacked Kwasi Kwarteng as chancellor and has junked almost half of her tax cuts, Bell calculated.

“However, the need to fund the remaining tax cuts and darker economic outlook, including higher debt interest costs, mean that despite today’s U-turns, Jeremy Hunt has just two weeks to decide how to fill a black hole of several tens of billions of pounds in the public finances,” he explained.

Paul Dales, chief UK economist at Capital Economics, said that “this is unlikely to be the final say either”.

He added that it’s “possible the prime minister will be ousted before long and/or more will need to be done to restore the UK’s credibility in the financial markets”.

Stephen Phipson, chief executive of Make UK, a business association, said that the decision to increase corporation tax again “sends the wrong signal to investors as to how attractive the UK is as a destination for foreign investment”.

“The UK urgently needs a long-term, credible economic and industrial strategy which includes a wide-ranging view of how we boost investment in the round,” he said.

“We cannot go on zig-zagging from one policy to the next,” he added.