What does a run on the pound mean?

What on earth does a run on the pound mean and why did John McDonnell mention it? (Picture: Getty)

Labour and the Tory Government are currently having a war of words over what the economy would be like under Prime Minister Corbyn.

John McDonnell has said that Labour are knee-deep in ‘war-game-type scenario-planning’ for economic disasters, like a ‘run on the pound’.

But what the blazes does that mean? Well, it’s an economics term, we know that for sure.

What would a run on the pound do to our economy, should it happen?

No, it doesn’t involve a gym membership that costs one pound (Picture: Getty)

A run on the pound is a description of a certain economic flash point.

It begins when businessmen with large investments in the UK perceive that the pound’s value is falling, usually because of a political shift (Brexit caused something similar).

Financial traders panic, and start to think it is not in their interest to own sterling. Therefore they sell what they have, to avoid any potential loss.

This action is replicated, before the value of sterling begins to fall and the Government has to adjust its value accordingly.

A run on the pound would mean a blow to the UK economy, leading to inflation (Picture: Getty)

Repercussions of a weaker sterling might include a rise in price of imported goods and raw materials.

Capital flight, a fast and unpredictable movement of large sums of money out of the country, and inflation are also possible biproducts.

The Tory Chancellor Philip Hammond says that if Labour gets voted in then our economists will panic and cause a run on the pound, which is very likely a shock tactic.

However, McDonnell says Labour are preparing for a run on the pound, which suggests they are expecting victory in the next election.


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