The pound rises to €1.20 for the first time in more than two years as latest figures show Germany heading for recession

The pound reached €1.20 against the euro last night for the first time in more than two years, as figures suggest Germany is heading for recession.

The pound rose by almost a cent against the eurozone, a level not seen since April 2022. Monthly business survey data shows a stark contrast between the UK and the eurozone.

In a bullish session for the pound, it also outperformed the dollar at $1.3359, a two-and-a-half-year high. Experts at Goldman Sachs predict it will hit $1.40 within 12 months.

In a note to clients yesterday, experts at Deutsche Bank, Germany’s biggest lender, said there was still “room for the pound to appreciate”.

They said Britain had had “the best data in the world” over the past two years, with the economy consistently beating expectations, and the Bank of England had been more cautious than other central banks in cutting interest rates.

“This has created a favourable environment for the currency, which we expect to continue through the end of the year and through risk events such as the autumn budget,” Deutsche experts said.

The euro’s weakness yesterday came after purchasing managers’ index (PMI) figures showed a deepening downturn in Germany, the continent’s largest economy, where job losses were at their fastest pace since the pandemic.

It was the latest blow to the beleaguered eurozone. In the UK, growth – though lower than expected – still easily outpaced that of its European rivals.

In Germany, the September PMI – a monthly measure of private sector activity – fell to 47.2, the lowest level in seven months.

A value below 50 indicates that business activity is declining.

The report showed the economy shrank by 0.2 percent in the third quarter, after a 0.1 percent contraction in the previous period.

If this is confirmed by official figures, it meets the technical definition of a recession.

Germany, once the continent’s industrial powerhouse, is now widely derided as the “sick man of Europe.” Much of the decline is due to the shrinking status of its vast auto industry, which is struggling with the disruptive switch from gasoline and diesel to electric vehicles.

China is also playing a role, with demand for German cars falling. At the same time, it is shipping cheap cars to Europe, which is hurting German automakers. Volkswagen, Europe’s largest automaker, is considering closing factories in the country for the first time in its 87-year history and could reportedly cut up to 30,000 jobs.

Cyrus de la Rubia, chief economist at commercial bank HCOB, said: “The downturn in the manufacturing sector has deepened again, dashing all hopes of a quick recovery.

‘In a sign of resignation, companies have been laying off staff at a pace not seen since the Covid-19 pandemic in 2020. It looks like a technical recession is in the making.’