SCOTLAND’S economy shrank by almost 10 per cent last year because of the lockdown forced on the country by the Covid pandemic, Holyrood’s budget watchdog said.

The Scottish Fiscal Commission said the dramatic and unexpected effect of the outbreak had led to its largest ever forecasting error.

In February 2020, the Commission forecast the Scottish economy would grow by 1% that year, but instead it fell by 9.6%.

The watchdog noted the emergence of Covid in China was a potential risk to global trade, but did not foresee the shuttering of large parts of the economy just weeks later.

In a forecast evaluation report, the Commission said it also over-estimated Scottish Government income from two devolved taxes - Land and Buildings Transaction tax and Scottish Landfill Tax - by £134m and under-estimated social security spending by £100m.

The upshot was an adverse error of £234m.

It will report the revenue and errors for income tax and business rates next month.

The group concluded that, although some of its errors were “particularly large”, the extreme circumstances may it hard to draw any lessons for future predictions.

It said: “We evaluate our forecasts with the aim of reducing our average forecast error by learning lessons from previous errors.

"However, the shock caused by Covid-19 is so unusual that it is hard to draw out useful lessons for the future.

"Shocks of this kind are a risk we can never fully control for in our forecast.”

Commission chair Dame Susan Rice explained: “Forecasts will never be wholly accurate because we can’t predict precisely what will happen in the future.

“The scale of the economic shock caused by Covid could not have been predicted when we made our forecasts, and the widespread effects on the economy and labour market will continue to make forecast modelling much more difficult for some time to come.”