THE sluggish Scottish economy is finally turning a corner, but SNP ministers are still set to slash some public spending by almost 10 per cent, according to a leading economic think tank

In its latest quarterly commentary, the Fraser of Allander Institute said there were grounds for “cautious optimism” on the economy this year, with a pick up in North Sea oil and gas.

It predicted GDP growth of 1.2 per cent, more than in 2017, and more than the 0.8 per cent predicted by the official forecaster, the Scottish Fiscal Commission.

The Institute, based at Strathclyde University, said the economic outlook remained “fragile and uncertain”, with Brexit and a potential trade war the biggest the risks.

It predicted GDP growth of 1.3 per cent in 2019 and 2020, compared to less than 1 per cent forecast by the Fiscal Commission.

It said a positive labour market, consumer optimism, and a reviving North Sea supply chain were behind the relatively upbeat figures.

However the Institute also sounded a warning in light of the Scottish Government’s new five year financial strategy, which came out last month.

It said ministers had prioritised so many areas, including the NHS, the police, childcare, pupil attainment, higher education and social security, that other areas of public spending faced a tough “squeeze”.

Under the “central scenario”, budgets in these areas - including local government, schools without attainment funding, enterprise, the environment, culture and tourism - are set to fall by 8 per cent in real terms between 2016/17 and 2021/22.

On a best case scenario, the fall would be 3 per cent, and 17 per cent on a worst case.

The figures were “unlikely to change significantly” despite a recent announcement of extra cash from the UK Government for the NHS, which should also boost the Scottish budget.

Institute director Professor Graeme Roy said the lack of a coherent UK Government plan mean Brexit remained the most important risk for the recovery of the Scottish economy, but it could not be used as an excuse for all its shortcomings.

He said: “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 commentary sponsors Deloitte, said: “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.

“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.”

Tory MSP Dean Lockhart said the report highlighted ongoing weaknesses in Scotland's economy under the SNP, particularly in productivity and business investment.

He said: “The SNP has failed to support economic growth and has instead focused on increasing personal taxes and their flawed blueprint for independence.”

Economy Secretary Keith Brown said the report showed much to be positive about.

But he added: “The prospects for longer-term growth are threatened by Brexit uncertainty and the prospect of being taken out the European single market and customs union.

“We remain focussed on growing the Scottish economy, which is why the 2018/19 Budget delivered an increase of 64 per cent in the Economy, Jobs & Fair Work budget as part of our investment of almost £2.4bn in enterprise and skills.”