This blog was first published here
We’re three weeks in for Charting the Course. Thanks for reading. The first two weeks were on the serious side – digging into what is going on with the UK’s labour market and public finances. So it’s time for some slightly lighter relief today, riffing off last week’s strong GDP figures. The UK economy grew 0.4% in July, as the momentum that saw the UK record the strongest growth in the G7 through the first half of this year continue into the second half of 2026 despite the painfully real headwinds from the Iran conflict.
A regular question I get at public events is, why should we care? “This isn’t my GDP” is a common view. Or, moving from the agnostic to the antagonistic, “isn’t growth the problem”? These questions get at important truths – there have been times when economies have grown but wages have not. And clearly some routes to growth can be very bad indeed for the planet (the numpties should stop bitcoin mining). But what does the big picture tell us about the link between GDP and things we care about? Well the UK recent history tells us that the lack of growth (specifically productivity growth) was the single biggest driver of the wage stagnation that hammered ordinary workers. It was all of our GDP that went missing, so I for one am very glad to see some growth turning up.
Some will say there’s more to life than pounds and pence of wages (although that’s a lot easier for those with lots of pounds and pence to say). I agree there are strong arguments for focusing policy on our ultimate objectives of human happiness or wellbeing (on which note I had an excellent meeting last week with the Wellbeing Economics Parliamentary group – chaired by former Cabinet Secretary Gus O’Donnell and Peter Lamb MP). So what do we see on this front? That growth is part of the answer. If we look at specific countries, citizens’ happiness tends to increase as GDP/capita grows. And if we look across countries, citizens are happier in richer places. Here’s a chart from a recent paper by American labour economist Betsey Stevenson spelling out that second stylised fact.
As a small technical aside, the chart above is showing a linear relationship between wellbeing and the log of GDP/capita. Without going into the maths, this is telling us something intuitive: each additional pound delivers a smaller increase in life satisfaction. We see the same pattern within countries – life satisfaction rises with income but at a declining rate. This is the wellbeing based argument for redistribution: £1 matters more to the happiness of someone living on £10k much more than it does for someone earning £100k.
Now I said growth is part of the answer. Firstly that’s because other things really affect life satisfaction – how healthy we, and our relationships, are in particular. That is why we should rescue the NHS, talk a lot more about the rise in loneliness, and all get out of our homes more. Secondly, it’s because there are other measures of wellbeing beyond the hedonistic metrics of life satisfaction or happiness. Stevenson’s paper shows that if we look at people’s sense of purpose or meaning, that tends to actually be lower in wealthier nations.
Now, the degrowthers amongst you shouldn’t get too excited at this point, because this isn’t the slam dunk for your cause you might think. The negative relationship between purpose and GDP/capita isn’t driven by the direct impact of wealth rising, but instead by something that tends to come alongside countries becoming richer: less god. Believing in a higher power gives you a higher purpose. This reminded me of one of the most striking research findings back during my Resolution Foundation days. We looked at life satisfaction for people doing different jobs. In general those doing jobs that paid more were happier – but who has the highest life satisfaction despite earning relatively little? Clergy. Who has high life satisfaction amongst higher earners? Air traffic controllers, though probably not this week.
It might seem odd for life satisfaction and life purpose to move in different directions – and it is a bit of a challenge for those of us heavily invested in protestant work ethic vibes. But this isn’t the only place we see this divergence. Most memorably, research (and life experience) confirms a similar pattern… when you have kids. Having your first child drives down your life satisfaction, particularly for women. No sleep will do that. But, people’s sense of purpose does the opposite, rising as space for existential angst is squeezed out by the rather clear purpose of looking after another human being. The takeaway? Maybe the sweet spot to raise both life satisfaction and purpose is to boost both GDP and… fertility.
Have a great week everyone.