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Will the UK’s ‘Living Wage’ boost spending power?

As the U.K.'s new minimum wage came into force on Friday, a report showed that spending power in the country is already at its highest in at least six years.

The average U.K. household had a weekly disposable income of £197 ($279) in February, up £12 on February 2015 and marking a sixteenth consecutive month of double-digit increases to spending power, according to Asda's Income Tracker. The British-founded supermarket chain that is owned by Walmart publishes regular updates on U.K. consumers' disposable income.



Customers inside an Asda supermarket in London.
Simon Dawson I Bloomberg via Getty Images
Customers inside an Asda supermarket in London.

Disposable income is at its highest since at least February 2010, the earliest date shown on the latest Income Tracker report on Friday.

"With the unemployment rate as low as 5.1 percent and the National Living Wage around the corner, we can expect to see further increases in average earnings in the next months," Kay Neufeld, economist at the Center for Economics and Business Research, said in the Income Tracker report.

The new mandatory National Living Wage came into force on Friday and entitles workers aged 25+ to £7.20 per hour. The minimum wage for those under 25-years-of-age or who are apprentices varies between £3.30 and £6.70 per hour.

The policy move was announced by Chancellor of the Exchequer George Osborne last summer in an effort to create a higher-wage economy in which fewer employees claim public welfare.

One million workers aged 25 or over will directly benefit from the higher minimum wage, according to the U.K. government, which says this is the biggest increase to the minimum wage rate in any G-7 country since 2009.

More recently, Osborne warned about the threats to the U.K. economy, including low productivity growth in "Western" countries. The U.K. Office for Budget Responsibility has cut its forecast for U.K. growth to 2.0 percent in 2016, from a previous projection of 2.4 percent.

"From weak demand abroad, to low productivity growth at home and the uncertainties surrounding the EU referendum in June, families will still be concerned about the economy and what that means for the money in their pocket. But the good news is that we still foresee increased spending power in the coming months," Neufeld said in the Income Tracker.

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