'Miracle' in Battersea: Francesca Kay has turned from the enigmas of art to the mysteries of belief

In recent English literature, genre and custom tend to compress the roles and thoughts available to the people of inner-city South London. Thanks to a tradition that swings between satire and miserabilism, they may figure as victims or villains, emblems of class divisions and demographic shifts, or (you suspect, in the near-future) the sullen tinder of riot. For spiritual crises, dark nights of the soul and searing flashes of grace or grief, fiction often calls at a swankier address. But not always: Graham Greene in Clapham, or Muriel Spark in Peckham, have found ecstasies and epiphanies in the sort of postcode where Essex cabbies rarely choose to drive after dark.

Francesca Kay now belongs in this company. Her second novel, The Translation of the Bones (Weidenfeld & Nicolson,£12.99), unravels the outcomes of a "miracle" observed in a Catholic church in Battersea. The book, by the way, consciously refuses to take those figurative quote-marks away from the event – in the direction of one certainty or another. "Without it being ambiguous," says the author, "it would become polemic or a sort of manifesto."

As she routinely cleans a crucifix in the Church of the Sacred Heart, the simple, faithful Mary-Margaret O'Reilly witnesses – or in some way experiences - the liquefaction of the holy blood, while the carved eyes of her Saviour open to look on her. In the same chapel, before the same statue, something happens to Kiti Mendoza, a Filipina nurse who has treated the injured woman in hospital after she falls in a visionary swoon.

Then the crowds begin to swell, the consequences ramify, and a novel that might have steered into social comedy plunges down to a much darker place. Meanwhile, the mystery remains, and the idea of the miraculous lingers like incense. Kay notes that, religion apart, people draw on it "in the wider world – very often, say, with the illness of a child, or at some point of crisis in their lives. Then they do quite easily start to use words like 'it was a miracle', even if they're not talking from a theological background. I certainly haven't experienced one myself - it's given to very few!"

Although this book occupies different ground from its predecessor, readers of An Equal Stillness will recognise a novelist who measures the abyss that often separates intense private passion from the demands and doubts of everyday life. That book, her first, won the Orange Award for New Writers and (rightly) harvested the sort of wonderstruck acclaim that most beginner novelists would find pretty miraculous in itself. Its portrait of the artist Jennet Mallow – informed, but not directly shaped, by the life of the sculptor Barbara Hepworth – gave to the heroine's career a scintillating plausibility. At the same time, Kay's narrative weighed the gifts and burdens of motherhood and marriage with a matching insight.

Kay, who lives in Oxford, admits to second-novel trepidation when we meet in the glacially genteel lounge bar of a hotel near Hyde Park – the sort of locale you might find in a novel by Elizabeth Taylor, whom she much admires. Rich in the same verbal artistry and emotional finesse as her debut, The Translation of the Bones does not disappoint. Within a brief span, it covers a canvas far wider than its forerunner, shifting between the lives, dreams and memories of a city congregation united only by their place of worship. The urban parish functions as a social microcosm, or cross-section. "That's one of the really good things about churches, especially inner-city ones," Kay says. "A church does have an egalitarian basis."

So we meet the dogged, devout Mary-Margaret; her embittered Irish mother Fidelma, bound by dread and obesity to a tower-block flat; the Tory politician's wife Stella Morrison, aching for reunion with her son Felix, sent away to a cold boarding-school; practical Alice Armitage, whose faith means cheerful good works; Father Diamond, the priest – and one-time academic mathematician – who has submitted to a long-resisted vocation; and Azin Qureshi, the sympathetic, secular-minded psychiatrist who gazes from the outside at belief, vaguely remembering the family rituals of mosque and prayer, and the "rhythms of a year marked by fasting and feasting".

In the switches of mood and tone of an urban panorama, with a politician's wife close to its heart, the book brought to my mind Virginia Woolf's Mrs Dalloway. Kay says that she did not take Woolf's metropolitan collage as a model, although "I do re-read [her] quite a lot because she is a very good way of reminding oneself what there is out there to aspire to."

Although the novel brings to life varieties of religious experience ("the whole spectrum of shades"), Kay knows full well that in fiction faith, or its loss, must appear "always in the concrete. A novel written about abstract ideas is always hard to pull off." She had no "evangelical" impulse in writing it, nor any didactic one: "I'm absolutely no theologian... I'm just a writer of fiction." She does, however, find it "extraordinary" that "In the West – or in this country anyway – we have very quickly got to a position where faith is an aberration rather than a norm... Being a Christian now is sort of counter-cultural, really."

Kay's own religious upbringing had its roots in a very particular place. Her Indian mother came from the Catholic community of Bombay; specifically, the seaside suburb of Bandra, where I have dodged kids playing street cricket outside little churches with parish notices pinned to the doors. Her English father served in the Foreign Office, in Delhi. "In early childhood, India felt like home," she says. In Bombay, "My grandparents' house faced the sea, but now there isn't even sea any more – it's reclaimed land. But it was fortunate for us that we were able to have quite a lot of time there as a family." Indian Catholicism, as she notes, has for centuries felt "quite at home in that country where all faiths are respected."

The diplomat's daughter went to a convent boarding-school in England, and studied English at Oxford. "I had visions of the creative life – but, in practice, I did the Civil Service exam". She passed, became a civil servant in London, and married. Her husband worked overseas, "so that put paid to any proper career for quite a long time."

They had three children: "I was actually very lucky that, when they were small, there was the opportunity to be with them, which many women don't have for good economic reasons." On their return to England, she became a carer in a playgroup for children with special needs.

The road that led to published fiction had internal as well as external blockages. "When I was in my twenties and straight out of Oxford, there were many reasons for not writing," she says. "One of them is that there is a wonderful tradition of work before you, and adding your little tiny pebble onto the cairn of English Literature is an act of hubris." But she did benefit from a "storytelling gene": "I compelled my younger sisters to sit still while I told them interminable tales. And I used to tell my children stories."

Three factors fused to speed her progress. First came "the sense of having something to say, even if it was only in a minor key... That coalesced with being confident enough to have a voice of my own. And then when my youngest child was properly fledged... there was silence in the house. I then felt I could at least try." An Equal Stillness grew from a youthful fascination with the abstract art of, first, Ben Nicholson and then Hepworth herself. "I think Barbara Hepworth is a really great artist. She's not a great artist because she is a woman; she's a great artist and a woman. That's in itself something to celebrate, isn't it?"

If An Equal Stillness celebrated the creative career, it also counted all the costs. Likewise, The Translation of the Bones registers the potential within religious belief for mania, obsession and delusion as much as for uplift, consolation and compassion. And the "logic" of its composition led not to some mystic revelation but an excruciating tragedy. "I wrote my characters to the point where they were going to have to undergo something very terrible... in order to find any kind of redemption: if that's not too strong a word."

In the starkest way, and with a truly upsetting twist, the novel poses again unanswerable questions about the "why" of suffering. Kay argues that "I don't think that just because one is an inexperienced novelist, one should shy away from the big questions". In the absence of solutions, "I do feel that the only way one can make any sense of suffering is in the effect that it has to make the living more compassionate." For their inventor, "The people in the story see things more clearly and understand each other... better than they did at the beginning. That's all one can say. That's the only sort of glimmer."

Laughingly, when I dwell on its central tragedy, Kay wonders if the novel ought to be sold "with a box of tissues" on the side. Thankfully, they won't be required. With its finely worked tapestry of voices and viewpoints, its keen-eyed pleasure in the contrasts of inner-urban life, its lyrical excursions into memory and yearning, The Translation of the Bones sharpens the reader's mind – and stretches its sympathies - rather than drenching it in mystical mawkishness. Both Spark and Greene would surely say "amen" to that.