UNCERTAINTY over Brexit hit the Scottish economy last year, with a new report finding that it caused significantly lower growth.

And Scottish Government chief economist Dr Gary Gillespie said that despite the immediate risk of a “no-deal” Brexit being removed, uncertainty remains, especially for those relying on new trade agreements.

His State of the Economy report published yesterday also revealed how Scotland’s labour market has continued to perform strongly by historical standards, although employment levels have fallen over the year.

It said consumer and business sentiment had weakened, and the outlook for next year and beyond is dependent on the shape of any future EU trade deal and the impact of businesses adjusting to additional trade requirements.

Gillespie said growth for Scotland this year is likely to be similar to the last couple of years, “but may strengthen as business sentiment and investment returns, in part, from the recent low levels and combined with stronger public investment and spending that may support stronger economic activity”.

READ MORE: Scots business confidence declines due to Brexit uncertainty

He said his report more broadly considers the potential short-term economic impacts during the Brexit transition phase, adding: “However, the outlook for 2021 and beyond is crucially dependent on the shape of any future EU trade deal and the impact of increasing trade frictions as businesses adjust to the additional requirements to trade, both in terms of costs and access.

“This is reflected in the updated forecasts from the Bank of England for next year and beyond and may manifest later this year if uncertainty drives business stockpiling as we approach the December 31, 2020 deadline.

“The official and independent forecasts for the Scottish economy suggest growth of around 1% in 2020, rising slightly over the next few years, which is broadly in line with recent annual growth in productivity.

“As noted, this may be stronger than 2019 but is likely to remain below trend as the economy transitions to whatever new trade arrangements materialise for 2021 and beyond.”

Gillespie said external factors, such as global growth and trade, remained challenging, and continued to present risks for the coming year: “The future economic outlook will therefore hinge both on the broader external environment as well as the nature of the UK’s future trading relationships. This is at a time when the economy is transitioning for other reasons – primarily around the global climate emergency and the potential for a 4th industrial revolution.”

Kate Forbes, the Public Finance Minister, said: “We were clear from the outset that Brexit would damage our economy and that the best option for the future wellbeing and prosperity of Scotland was to stay in the European Union.

“As the First Minister said this week, we are leaving the EU at a time when we have never benefited from it more, and when we have never needed it more to achieve our ambitions.

“Trade agreements shape the nature of our economy and the situation we are in presents a particular challenge to exporters as we are taken out of the world’s biggest single market, which is around eight times bigger than the UK market.

“As a responsible government we will continue to take steps to protect jobs and our economy from further damage caused by Brexit but not every impact can be mitigated. We believe the best option for Scotland is to become an independent country within the European Union. Whatever our constitutional future, Scotland will remain an outward-facing, constructive nation, working closely with our European partners.”