SCOTLAND may have already entered a recession, the country’s leading economic think-tank has warned ahead of official figures being released.

With growth data due out next week, the Fraser of Allander Institute said it was “in the balance” whether Scotland had suffered a second quarter of shrinking GDP.

The Institute’s commentary for June said the economy remained in a “precarious position”.

It said: “Scotland’s recent economic woes can no longer be explained just by the downturn in the North Sea or indeed by Brexit. Instead, Scotland’s economy seems to be stuck in a cycle of weak growth, declining confidence and poor investment and net export figures.”

Rising inflation and stagnant pay meant the outlook for household finances was “grim” and for many it would feel like a “lost decade” since the Crash.

However the Institute also said that, while most businesses expected growth in the first half of 2017 to be “fragile at best”, it still expected the economy to grow this year, albeit modestly.

Its central forecast was growth of 1.2 per cent in 2017, 1.4 per cent next year and 1.6 per cent in 2019, below the recent trend for Scotland and increasingly behind the UK rate.

Scottish output fell in the last three months of 2016 and if this is repeated in the first three months of 2017 it will constitute a technical recession.

A growing concern is that a two-year slowdown in growth has spread across more of the economy, with activity in manufacturing and construction down and services static.

However finance and business services are forecast to improve and food & drink and tourism ought to benefit from the low value of Sterling caused by the Brexit vote.

It also questioned the lack of political debate about the economy in the general election, especially now that Holyrood is responsible for over £11bn of income tax revenue.

Unemployment is forecast to rise slightly as a recent sharp increase in inactivity levels off.

Institute director Professor Graeme Roy said: “The Scottish economy continues to lag behind the UK as a whole, with the scale of the gap growing rather than narrowing.

“On balance, our forecast is that growth will return in 2017, with tentative signs of a more positive outlook for Scotland’s oil and gas sector and improving order books.

“In the current climate sentiment can change quickly. Should the upcoming Brexit negotiations go badly, or the UK economy slows down more quickly than anticipated, then Scotland’s economic prospects could take a sharp turn for the worse.”

Opposition parties said uncertainty over independence was hurting the economy.

Labour's Jackie Baillie said: “Scotland is teetering on the brink of recession because Nicola Sturgeon has been more interested in running a campaign for a second independence referendum than running a government.

“Every time difficult figures for our economy are announced SNP ministers claim the fundamentals of our economy are strong. Ministers must take their heads out of the sand and stop being complacent.

"The picture on high streets and in communities across Scotland is crystal clear – the SNP is not doing enough to create high quality, well paid jobs. We need an end to the SNP passing on austerity to Scottish communities, we need to see investment in our economy instead.”

Tory MSP Dean Lockhart added: “Scotland’s economy continues to badly under-perform thanks to this SNP government. And that’s while the rest of the UK powers ahead, so the SNP can’t possibly blame Brexit.”

The SNP highlighted the warning that Brexit could cause “a sharp turn for the worse”.

MSP Stewart Stevenson said: “This is just the latest warning that a bad Brexit deal could have devastating consequences for our economy – which is exactly why the Scottish Government will be fighting tooth and nail to protect our single market membership.”