I recently went on a tour in Iceland and our tour guide said that the folklore of Huldufólk was inspired by Celts that lived in Iceland before and were displaced to the interior after the Scandinavians began to settle. Is there any accuracy to this statement? I know that the Faroe Islands were first settled by Celtic monks, so it’s not a long shot to think that they might have sailed a bit farther and discovered Iceland before the Norse. Is there any hard evidence (either textual or archaeological) pointing toward celts living in Iceland?
The tradition of the indigenous hidden folk of Iceland is certainly NOT a recollection of any earlier Celts living in Iceland. The tradition is a fairly clear transposition of Northern European folklore to Iceland dating to the time of the first settlement. The first of these to arrive in Iceland may or may not have encountered a few Irish monks (or they may have found evidence that Irish monks were there). The question of whether that occurred is a matter of dispute. Regardless of how that question sorts itself out, there is no reason to look at a previous population to explain why the Icelanders believe(d) that their island was populated by supernatural beings. This tradition is ubiquitous in Northern Europe.