SCOTLAND’S economy could suffer a £3billion hit if the UK fails to delay Brexit and leaves Europe without a trade deal at the end of the year, the Scottish Government has warned.

Publishing economic modelling on the impact of the UK falling back onto World Trade Organisation terms, Michael Russell said an extension of up to two years was “essential”.

Not extending would mean Scotland, and the UK as a whole, subjected “to an entirely unnecessary second economic and social shock on top of the Covid-19 crisis,” he said. 

The Brexit Secretary issued the warning as he issued the 60-page analysis ahead of a Holyrood debate on Brexit.

The UK has until July to seek an extension to the current Brexit process, otherwise it will have to leave on WTO terms after the current transition period ends in December. 

With talks stalemated, the EU has said it is wiling to consider a two-year extension, but the UK has insisted it would rather abandon the process than compromise on its goals.

The EU wants the UK to stay closely aligned with its rules and laws in return for a trade deal, but the UK wants to diverge, making it easier to strike its own deals with other countries.

The Scottish Government paper, which coincided with a Holyrood debate on Brexit, said Scottish GDP could fall by up 0.7 to 1.1 per cent by 2022 without an extension, a cumulative loss of economic activity between nearly £2bn and £2bn over those two years.

“This will clearly hamped recovery from the impact of the pandemic,” it said.

The report said Scottish companies would be in a “much more fragile state” because of Covid, and unready to absorb a Brexit-related shock this year than after a two-year delay.

It said the agriculture, fisheries and manufacturing sectors would be especially badly hit.

At  Holyrood, Mr Russell said:  "Ending the EU withdrawal transition period at the end of this year would subject Scotland and the UK as a whole to an entirely unnecessary second economic and social shock on top of the Covid-19 crisis.

"More jobs would be lost, living standards would be bit and essential markets and opportunities for recovery would be damaged. For many businesses which manage to survive the Covid-19 crisis this second Brexit shock would be the final straw.

He said it was now "essential the UK indicate they will seek the extension of the transition period of up to two years which is provided for in the withdrawal agreement".

He added: "To refuse to seek that extension, which the EU have indicated would be readily granted, is a reckless act which will destroy thousands of jobs, undermine an already fragile economy and devastate communities across Scotland when we are most vulnerable.

"Pragmatically the issue is clear, there must be an extension to allow people and businesses in Scotland to continue to benefit from most aspects of EU membership while they attempt to recover from the current crisis."

Tory MSP Murdo Fraser said the talks had stalled because the EU wanted excessive access to UK fishing waters, and urged the SNP to oppose the demand Brussels. 

He said Mr Russell’s statement and report was “just another of the endless series of doleful pronouncements from the SNP Government on Brexit”.

He said: “A further delay will achieve nothing but deliver years more of access to our fishing waters for the other EU nations, while our fishing communities are desperate to seize the sea of opportunity that awaits us."

Backing the call for an extension, Labour MSP Alex Rowley said: “A poor or no deal Brexit will be devastating for Scottish businesses and Scottish jobs. "Scotland is on the brink of an economic crisis that will be devastating for families up and down Scotland. Now that the UK has left the European Union, it is crucial we get a deal that would give us access to European markets and a close alignment with the customs union.”

Scottish Liberal Democrat leader Willie Rennie said a no deal Brexit “would be utterly unacceptable.”

New Scotland Office minister David Duguid, the Tory MP for Banff & Buchan, said: “Extending the transition period would simply prolong the negotiations and increase uncertainty for business. It would bind us into future EU legislation, without us having any say in designing it, but still having to foot the bill as we would still have to make payments into the EU budget.”

Naomi Smith, CEO of the Best for Britain group, which wants a Brexit extension, said: “If we exit the transition period without a trade deal, Scotland and the rest of the UK will face a double whammy of economic hits.

“On top of the devastating impact of the coronavirus crisis on the economy, if the UK leaves the EU without a deal then manufacturing, banking, finance and insurance sectors in Scotland will be severely exposed.

“This report is yet more evidence which shows why the UK Government should extend the transition period to secure a trade deal at the end of the ongoing negotiations.”