'Give me a place to stand, and I shall move the world,' or so said Archimedes – supposedly. He was expounding upon the benefits of levers. A small action can lead to a massive reaction, if the pivots and levers are right. It is like that with the economy too, although economists often fail to grasp this point – which is why so few predicted the crisis of 2008. But it can work the other way too; a few small changes can have a radical upwards effect. Neither economists nor the markets realise how dramatic the economic turnaround might be.

The dangers of a housing bubble have been outlined many, many times. The point those who dismiss such dangers are not getting is the British psychology. It is as if the British DNA has been hardwired to expect house prices to rise, and to be in permanent fear of missing out on the opportunity to jump on or climb up the housing ladder. In the long run, this expectation may prove wrong; indeed the very idea that there is such a thing as a housing ladder may be wrong. But expectations are such that it takes very little government interference to create a housing boom. And because of the way UK households see the value of their homes as a kind of extension of their salary, or as the main part of their pension, when house prices rise consumer demand rises and with it GDP.

But this is not the reason why it is being suggested here that that the UK economy may be set to boom – although it will help.

Bear in mind that the UK economy today is around 15 per cent smaller than if it had carried on growing at the pre-2008 trajectory. Squint a bit, look at the data through glasses that may be a touch tinted by roses, and could it not be said that the UK economy has room for a period of catch-up. Let's say it will take five years before the UK gets back to where it would have been had the pre-2008 growth rate continued. Let's say the underlying growth rate for the UK is 2.5 per cent. This means that growth over the next five years will be around 5.5 per cent a year.

That is crazy, you might say. Well maybe a growth rate like that is crazy, but it might happen all the same.

Take corporate cash. According to Capita Registrars, no less than £166 billion in cash sits on corporate balance sheets. Since 2008 cash minus short-term debt has risen from £12.2 billion to £73.9 billion.

If you want to know why the downturn has been so severe, the above numbers give the reason. Just imagine the economic implications, not to mention the implications for equity values, if some of this money was released to fund investment, higher dividends, and mergers and acquisitions.

The reality though is that this is understating what might happen. When you think about it, the build-up of this cash mountain at a time when interest rates were at record lows was extraordinary.

If the corporate world was to start thinking that economic growth is set to accelerate, it won’t just start spending its cash, it will engage in leverage to make Archimedes’ ideas for moving the earth look quite modest.

Now consider what the surveys are saying. The latest composite Purchasing Managers’ Index from Markit/CIPS covering August hit its highest level since record began in 1998. According to Markit, the survey pointed to quarter on quarter growth of between 1 and 1.3 per cent – so you see a year on year growth of 5.5 per cent is not that far off what the surveys are suggesting may be happening already.

Interest rates are set to rise. The time to engage in leverage is now, before rates rise too high. And engage in leverage is what companies will do. The Vodafone Verizon deal is just the beginning.

Will we see a bubble? Will it be too good to last? Maybe. But the Institute of Economic Affairs is taking the opposite approach; it is saying that from now on the UK’s sustainable growth rate will be a mere 1 per cent year.

What the pessimists overlook, and they are being led by an economist called Robert Gordon, is technology. If you shop in Luddites‘r’us, you may well conclude such predictions are absurd.

© Investment & Business News 2013