BREXIT remains the greatest risk to Scotland’s economic recovery, according to a respected think-tank, which forecast economic growth set to recover this year but remaining below trend.

The latest Economic Commentary from the University of Strathclyde’s Fraser of Allander Institute forecasts a 1.2% increase in Scottish GDP in 2018 and 1.3% growth in 2019, making its outlook more optimistic than the government’s own official forecaster the Scottish Fiscal Commission.

Researchers cite a strengthening oil and gas sector, a robust global economy and a pick-up in household and business confidence as the key factors driving its assessment.

However, the institute cautions that following the disruption to the economy from the Beast rom the East in March, new Scottish gross domestic product (GDP) data to be published next week is likely to show weak growth (if any) for the first three months of 2018.

If this is the case, any such an impact should be temporary with growth bouncing back later in the year.

Professor Graeme Roy, institute director, said: “With just nine months to go until the UK leaves the EU, the lack of a coherent plan from within Whitehall about the UK’s long-term economic relationship with our most important trading partner risks holding back Scotland’s recovery.

“Irrespective of whether you agree or disagree with the decision to leave the EU, the uncertainty caused by this lack of clarity is making it extremely difficult for businesses to develop contingencies or plan for the future.

“Two years on from the referendum outcome, simply kicking the can down the road is simply no longer a credible economic strategy for government to adopt.”

John Macintosh, tax partner at Deloitte, added: “There are some encouraging signs that Scotland’s economy is improving and will perform better this year than last year.

“Some of Scotland’s exports, particularly food and drink, are showing strong growth and sentiment in the oil and gas sector, which is emerging from a hugely challenging time, has returned to its highest level since spring 2013. Businesses should now take steps to ‘future-proof’ themselves by preparing for the opportunities and challenges ahead. This should include collaboration with peers and government, investment in skills development, digitalisation and a commitment to innovate and adapt to a fast-changing working environment.

“While there are grounds for cautious optimism, business and government need to make sure they remain focused.

“This is particularly important given the potential distraction of the constitutional challenges which lie ahead.”

Meanwhile, a separate report said the Scottish Government could be facing a public spending shortfall of £27 billion over the next seven years.

The research came from Sopra Steria and National Institute of Economic and Social Research (NIESR) and indicated a gap more than 20 times greater than estimates from the Scottish Fiscal Commission.

It warned the cost of Brexit and demographic pressures will create a widening gap between society’s rising needs, and what public services will be able to deliver in the future. The report recommends improving the efficiency of public service delivery, as a more palatable option to further spending cuts.