This long overdue wages boom will transform the economy – Telegraph.co.uk

So how will that impact the economy? Here are four trends to watch for.

First, expect a consumer boom. When all those pay rises start hitting people’s bank accounts, we should expect people to spend, spend and spend again. At the lower end of the earning scale, people spend a lot more of any increase in disposable income (in the economics textbooks that is known as a higher marginal propensity to consume).

Someone making £25,000 can probably think of a heck of a lot of things he or she would like to buy but hasn’t been able to afford. Someone on £80,000? Less so. The rise in wages will feed through into spending far more rapidly than the same money among white-collar workers, and all that extra higher spending will boost retailing, leisure and travel very quickly.

Next, expect to finally see a rise in home ownership again. Over the last decade, the percentage of people who owned their own home steadily fell from a peak of 73pc to just 63pc. The people who had the most trouble getting on to the property ladder were not just the young (who, funnily enough, often get older) but semi-skilled, blue-collar workers.

With stagnant wages, and escalating housing prices, it was harder and harder for them to build up a deposit and a mortgage of three or four times their earnings didn’t go very far. If real wages are up 30pc, and you multiply that by four, suddenly there is a lot more money to play with. Overall, houses will become more affordable, especially the new-builds going up around the country. Most of us want to own the place where we live – and if we can afford it we will buy.

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