THE risk of Scotland falling into recession has been flagged by a leading economist after official figures revealed gross domestic product north of the Border fell in the fourth quarter.

The 0.2 per cent decline in economic output in Scotland, unveiled in figures published yesterday by the Scottish Government, was in stark contrast to a 0.7 per cent rise in the UK as a whole.

And the gross domestic product (GDP) figures show the Scottish services sector stagnated during the fourth quarter of last year, with production contracting by 0.9 per cent and construction output falling by 0.8 per cent. Within production, manufacturing output also fell 0.9 per cent.

The broader Scottish economy has been affected by the North Sea downturn, which has hit the services and manufacturing sectors and taken a significant toll on activity in the north-east. And the Scottish construction sector, which had enjoyed strong growth, has been much weaker in recent quarters as a result of major infrastructure projects such as the Forth Replacement Crossing coming to an end.

Surveys have, meanwhile, signalled that business confidence has been hit much harder in Scotland than in many other parts of the UK by last June’s Brexit vote.

However, the extent of Scotland’s under-performance of the UK as a whole in the fourth quarter took economists by surprise.

Jeremy Peat, visiting professor at the University of Strathclyde’s International Public Policy Institute, said: “Essentially, the data have to be seen as deeply disappointing.”

Scottish GDP barely grew in the third quarter of last year, edging up by only 0.1 per cent.

Noting he had earlier this week cited a risk that Scottish growth in 2017 could be close to zero, and reflecting on yesterday’s GDP figures, Mr Peat said: “Now we must see the risk of recession.”

If the Scottish economy turns out to have contracted in the first quarter, and the GDP figures for the final three months of last year are unrevised, this would constitute renewed recession north of the Border. First-quarter GDP figures are due to be published in the summer.

Mr Peat said: “A recession is formally defined as two quarters of negative growth.

“We have now had flat growth in the third quarter, negative growth in the fourth quarter. There must be a risk that we will again see negative growth in the first quarter of 2017. That would mean, formally, the Scottish economy would be in recession.”

Economic output in Scotland over last year as a whole was up just 0.4 per cent on 2015, well adrift of albeit below-trend UK growth of 1.8 per cent over the same period.

Scottish Chambers of Commerce warned the fourth-quarter decline in the economy north of the Border “must signal red alert” for the Scottish and UK Governments.

Chief executive Liz Cameron said: “The news that Scotland’s economy is contracting at a time when the overall UK economy is growing healthily must ring alarm bells for both the Scottish and UK Governments.

“While Scotland’s growth has been sluggish since the fall in oil prices … the evidence now shows that no sector in the Scottish economy is experiencing growth, with production and construction falling and our service sector flatlining.”

The University of Strathclyde’s Fraser of Allander Institute also described the latest Scottish GDP figures as “deeply disappointing”.

Director Professor Graeme Roy said: “We previously warned that this was a fragile time for the Scottish economy and that a contraction in output towards the end of 2016 was entirely possible. Sadly, these fears have now been realised.”

He added: “With any Brexit uncertainty affecting the UK as well, it’s hard to argue that Scotland’s relatively weaker performance can be explained by the outcome of the EU referendum.

“While the downturn in the oil and gas sector remains part of the explanation, it is difficult to ignore the substantial declines in construction over the past year (-6.0%) or in manufacturing (-7.3%), with all areas of manufacturing, not just those tied to the North Sea supply chain, shrinking during 2016. A new concern is the exceptionally weak performance in the all-important Scottish services sector, which saw no growth at all during the final three months of 2016.”

CBI Scotland director Hugh Aitken described the services sector stagnation as “a real worry”.

Andy Willox, Scottish policy convenor of the Federation of Small Businesses, said: “If Scotland is to avoid recession, we need to see action from Governments in

Edinburgh and London to boost local firms.”