Figures from the Bank of England this week showed that bank lending to smaller companies is still falling, which suggests that the Funding for Lending Scheme has not yet got credit flowing to companies. Meanwhile, forward guidance - Bank of England Governor Mark Carney's attempt to reduce interest rate expectations - has backfired. Since it was issued, interest rate expectations have actually risen. Futures markets are now pricing in a three-month rate of 1.6 per cent for December 2015, compared with 1.2 per cent the day before guidance was issued. "The first rate rise is probably coming earlier than Mark Carney has argued," says Rob Wood at Berenberg. Guidance has "received a comprehensive thumbs down from the market", says Ruth Lea at Arbuthnot.
Nevertheless, the economy is picking up steam. Figures this week show that purchasing managers' indices have risen to their highest level since data began in 1998. "The economy is enjoying its strongest growth spurt for over 15 years," says Markit's Chris Williamson, adding that GDP could rise by over 1 per cent in the third quarter.
This suggests that the Bank of England's forecasts might be too pessimistic. It expects GDP to rise by 2.7 per cent in the year to the second quarter of 2014 - an average quarterly expansion of less than 0.7 per cent. "Growth is likely to significantly beat the Bank's forecasts," says Mr Wood.
But strong growth doesn't necessarily mean unemployment will quickly fall to the 7 per cent rate which Dr Carney has said is necessary before interest rates rise. He believes such a move requires the creation of 1m net new private sector jobs. But this could be slow to happen if the pick-up in activity is accompanied by faster productivity growth. And there are signs of this starting; although GDP rose by 0.7 per cent in the second quarter, total hours worked rose only 0.3 per cent.
For equity investors, this raises the possibility of a perfect combination. Faster growth would raise appetite for risk while productivity growth holds down labour costs and inflation. And if Dr Carney delivers on his promise to keep interest rates "lower for longer", cash might lose some of its attractiveness, triggering a switch into shares.
