Bank of America and Pimco, the international investment firm which manages $1.5tn and published research which predicted a successful 'out' vote, have both warned that the UK's leave voters' decision to defy the majority of the country's political leaders and the advice of international economic institutions is reflective of a new wave of anti-establishment policial movements, which are being fuelled by increases in income inequality.
Joachim Fels, Pimco economic advisor wrote:
"As I see it, the vote in the UK is part of a wider, more global, backlash against the establishment, rising inequality, and globalisation.
"Even if populist, separatist and nationalist parties don’t come to power, the Brexit shock is likely to intensify the pressure on current and future mainstream governments to address inequality, become more protectionist and limit migration," he added.
The analyst comments that the result of the vote will lead to a higher chance of a period of stagflation in the UK, writing:
"This would likely come to pass if current or future governments turn more protectionist by erecting barriers to trade and migration, and take up or intensify the battle against inequality by redistributing income from capital to labour.
"This could lower potential growth even further and would likely lead to higher wage and inflation pressures."
A new paper from Bank of America labelled Brexit the "biggest electoral riposte to our age of inequality" and that investors should expect a continued shift towards anti-establishment "populist" policies.
"The Brexit vote was a shock to Wall Street because an electorate in a country with no economic or financial crisis voted to dramatically change its political status quo. This partly reflects the fact that economic recovery in recent years has been deflationary and unequal," the report concluded.
Beyond Brexit
Politicians including Donald Trump in the US are now successfully mobilising these groups who feel their standard of living has plateaued or disimproved during the past 10 years.
The fragmented result of Ireland's General Election also reflected the failure of the governing parties to sell their 'recovery' narrative to swathes of the population who do not feel that they have benefited from the upswing.
Peter Brown Institute of Investing & Financial Trading discussed the British decision in its wider context on Newstalk Breakfast shortly after the result was announced:
"What are seeing here is that there's something fundamental going on in the world that [means] we are getting votes that are very unusual and very revolutionary," the analyst said - raising the possibility that this environment could create the conditions for Donald Trump to be elected president in the US while Borris Johnson takes power in the UK.
