The UK is likely to enter a deeper recession than previously expected next year, while interest rates and inflation will be lower than forecast, according to revised analysis from Goldman Sachs. The US investment bank downgraded its outlook for Britain, in analysis released on Sunday, forecasting the UK economy would shrink by 1% next year, down from its previous estimate for a 0.4% contraction. Goldman Sachs said that the increase in corporation tax to 25% in April – after Truss U-turned on one of her key Conservative leadership campaign commitments – was one factor. Its report said: “Folding in weaker growth momentum, significantly tighter financial conditions, and the higher corporation tax from next April, we downgrade our UK growth outlook further and now expect a more significant recession.” Analysts said that Truss backtracking on her corporation tax plans could help to ease pressure on the Bank of England for a tougher rise in interest rates. Goldman Sachs, Deutsche Bank and Barclays said a 0.75 percentage point increase in rates to 3% was now more likely at the Bank’s next meeting in November, down from previous estimates for a rise of one percentage point made immediately after the mini-budget. Goldman analysts believe UK interest rates will now peak at 4.75%, slighter lower than the 5% previously factored in. A separate business survey by the accountants Deloitte found that UK companies are expecting the rise in interest rates will make it more difficult to cope with a slump in sales and recession over the next year. Finance directors at some of Britain’s largest firms said that borrowing was more costly than at any time since 2010, making investments harder to justify. The poll by Deloitte found that a majority of finance directors expected revenues to fall over the next 12 months and that plans to cut costs and control the outflow of cash had become their top two priorities. While the survey was conducted before Kwasi Kwarteng was sacked on Friday and the prime minister decided to roll back much of last month’s mini-budget, it is likely companies will continue to focus on reducing costs to minimise the impact of the downturn. Ian Stewart, chief economist at Deloitte, said the rise in borrowing costs following steep rises in the Bank of England base rate was forcing firms to change the way they financed investment. “A 12-year period of easy credit conditions is drawing to an end. Corporates are seeing a reset in the cost and availability of credit. “Not since the credit crunch have chief financial officers rated debt – whether that’s bank borrowing or corporate bonds – as being less attractive as a source of finance for their businesses than they do today.”