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Budding optimism over economic growth

According to Markit which carries out the survey of businesses, the service sector grew again in September. Photo: PA Wire

Are we nearly there yet? Have we really turned a corner? Is the economy consistently growing again? Every release of data in recent weeks suggests it may.

Today came the latest – a measure of the huge service sector which makes up over three quarters of the economy. According to Markit which carries out the survey of businesses, the service sector grew again in September (the index was 60.3 – anything above 50 represents growth).

Taking the third quarter of the year as a whole, services grew at the fastest rate since Tony Blair came to power in 1997. Yes, really. Cool Britannia. YBAs. Oasis. It’s a long time ago.

Added to good readings in similar surveys of the manufacturing and construction sectors, it suggests the economy is growing about 1.2 per cent in the quarter.

It’s far from stellar but represents consistent acceleration from 0.3 per cent GDP growth in the first three months of the year and 0.7 percent in the second and suggests Britain should have much better growth in 2013 than most economists thought at the start of the year.

This optimism is mirrored by a detailed survey of UK finance directors carried out by Deloitte.

For the first time in three years they have switched from defensive strategies, shoring up their reserves to planning for expansion.

These executives are switching from cutting costs (which they were still doing last year) to launching new products and services; and they’re happy to do this by increasing business investment – something which has been sorely missing from the economy since 2007.

The Chancellor George Osborne made clear this week that he’s not easing back on austerity. Credit: PA Wire

So what could possibly go wrong? Well, quite a lot. This budding optimism is still fragile and could yet be knocked by another crisis.

Politicians in America have reached a complete deadlock in managing the economy and the fallout may be global if the impasse carries on.

The eurozone has gone quiet but is not fixed. Banks in Spain, for example, are nursing loans which will never be repaid, about which they haven’t come clean.

Unemployment in Spain, Portugal and Greece is devastatingly high and may still trigger political instability. At home, the Chancellor made clear this week that he’s not easing back on austerity, far from it.

So, are we nearly there yet? Not quite. But there are good reasons to welcome good news as it rolls in and to hope that it keeps coming.