For centuries, the United Kingdom has sculpted a reputation for being one of the world’s richest and most powerful countries — and it still is. Today, the U.K. is home to some of the globe's top financial institutions, major multinationals, and elite universities. London is one of the most influential cities on the planet, and its political machines command a lot of respect overseas. But if you really crunch the numbers, the U.K.’s finances aren’t quite as ironclad as you might think.

According to new analysis from the Institute of Economic Affairs (IEA), the average Briton is “significantly poorer than the average person in Switzerland, Singapore, the United States, Australia, and Germany.” In fact, the U.K.’s GDP now ranks 21st in the world. That means it’s effectively poorer than every U.S. state on a per-person basis.

This has triggered a tidal wave of online debate, because the claim looks absolutely bonkers at first glance. After all, we’re talking about the country that gave us the Industrial Revolution, subways, and the World Wide Web. Surely that country isn’t poorer than every state in the U.S., right?

Well, the data says otherwise. But as always, the reality is a little bit more complicated than all of the viral headlines you’re probably seeing online.

Is the U.K. Really Poorer Than Every U.S. State?

First thing’s first: let’s take a closer look at this IEA study. The U.K.'s oldest free-market think tank strategically released its latest report on the country’s economic position just weeks before the U.K’s local and regional elections in May.

The group’s analysis broke down the U.K.’s GDP per capita, which is a basic measure of economic output per person in a particular area. Economists love to use GDP as a rough shorthand for productivity and living standards — although it’s important to note that it’s not the perfect method of comparison when you’re stacking countries up against one another. We'll come back to that in just a minute.

Anyway, the IEA’s study found the average U.K. GDP per capita now sits at around $57,000. That might not sound horrible, but let’s add a bit of context: The state of New York has a GDP per capita of more than $120,000, while Massachusetts and Washington’s GDP per head is over $110,000.

Even Mississippi, which is traditionally the Union's poorest state, sits just above the U.K. when it comes to GDP per capita. Of course, a couple of economists have been debating this Mississippi point, because it depends on the dataset and exchange-rate assumptions you’re using.

Still, nitpicking doesn’t change the facts: the U.S. has dramatically pulled ahead of the U.K. economically. 

And the most interesting part of all this is the reactions of everyday Britons. The IEA polled U.K. citizens, and many assumed their country ranked around seventh place when compared to all 50 U.S. states.

When faced with the real numbers and a last-place finish, 27% of individuals expressed shock. A further 15% said they were downright “embarrassed” — and that’s a pretty fair reaction. After all, the U.K. is culturally and institutionally rich. So, what has happened economically?

Why the U.S. Pulled So Far Ahead

This financial canyon separating the U.S. and the U.K. didn’t appear overnight. It has been widening ever since the 2008 financial crisis thanks to differences in productivity growth, investment, labor markets, and energy costs. But the number one factor that has helped the U.S. pull ahead is Big Tech.

Love it or hate it, the United States has become the global headquarters the corporations driving this big shift towards a digital economy. Huge companies like Amazon (AMZN), Meta Platforms (META), Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA) have generated astronomical productivity gains and market wealth over the last decade. That has translated directly into wage growth, and it has ballooned the United States' GDP per capita in record time.

Meanwhile, the U.K. has been late to the party when it comes to Big Tech. There are plenty of regulatory sandboxes and unicorns in Britain, but the country’s tech ecosystem just isn’t operating at the same scale.

Then you’ve got labor productivity. In the U.S., productivity growth has consistently outpaced the U.K. over the last decade. Some of that stems from the fact that Americans work longer hours and take fewer days off. The U.S. economy places a lot of value on that high productivity and rewards it more aggressively.

Then there’s energy prices. This matters so much more than many seem to realize.

The United States' shale gas boom drastically lowered energy costs for business owners and manufacturers. Lawmakers in Westminster and devolved governments in Wales and Scotland essentially banned fracking — and despite access to North Sea oil, the U.K. has been hit particularly hard by the energy shocks that have come out of the wars in Ukraine and Iran. That makes British energy prices among the highest in the world.

Add in housing constraints and the political instability tied to Brexit, and the result almost seems like a foregone conclusion. The U.K. is still a rich country, comparatively speaking. But when it comes to GDP per capita, the U.S. has left it in the dust.

How Does This Gap Affect Investment?

These numbers aren’t just an academic debate for economists. The widening gap between the U.K. and the U.S. also has implications for markets and investors.

We all know that capital flows toward faster-growing economies. Countries that want to attract investment need strong productivity trends, long-term earnings growth, and deeper innovation ecosystems. Right now, the United States has all of those things. That’s why U.S. equities are consistently outperforming international markets.

That is reflected in the fact that Wall Street is dominated by tech companies that dominate global market capitalization ratings. By contrast, the London Stock Exchange (LSE) is becoming more and more skewed toward slow-growth industries like mining, banking, and energy.

Having said all that, the IEA's viral economic comparison does warrant a big pinch of salt. GDP per capita is a useful tool for economists trying to measure economic output, sure. But it also ignores quality of life, which is a distinction that does matter.

Americans pay substantially more out of pocket for university tuition, insurance, childcare, and housing than Britons. The U.K.’s publicly funded healthcare system also slashes the direct medical costs ordinary households pay, which is why U.S. citizens pay more than double per capita on healthcare.

It’s also important to look at the issue of inequality. America’s GDP average is heavily skewed by ultra-wealthy regions and industries that are all concentrated around a handful of states. Gains there don’t actually equate to better outcomes for the country as a whole, and the contrast between wealthy and poor areas in the U.K. isn’t as dramatic.

Translation? Americans have more money on paper. But they work more days and longer hours for that money. Then they have to part with huge wads of it thanks to higher out-of-pocket expenses. So, maybe money isn't everything.

Then again, Brits can’t just dismiss the IEA’s numbers. GDP doesn’t measure every aspect of an economy. But it does affect everything from wages and public service provision to healthcare funding and infrastructure. At the end of the day, the U.K. needs to unlock growth in order to stay competitive. Otherwise, the economic gap between the U.K. and its peers will only grow wider and wider. 

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