Sterling soars to 1.20 euros for the first time in more than two years as latest figures show Germany heading for recession

The pound hit 1.20 euros against the euro last night for the first time in more than two years as figures suggested Germany was heading for recession.

Sterling rose almost a cent against the single currency to levels not seen since April 2022 as monthly business survey data showed a stark contrast between the UK and the eurozone.

In a buoyant session for the pound, it also advanced against the dollar to $1.3359, its highest in two and a half years. Goldman Sachs experts predict it will reach $1.40 within 12 months.

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

They suggested that over the past two years Britain has had “the best data in the world”, with an economy that has consistently outperformed expectations and a Bank of England more cautious than other central banks in cutting interest rates.

“This has created an optimal environment for the currency and we believe it will continue through the end of the year and in the face of event risks such as the autumn budget,” Deutsche experts said.

The euro’s weakness yesterday came after Purchasing Managers’ Index (PMI) figures showed a deepening slowdown in Germany, the continent’s largest economy, with job cuts at the fastest pace since the pandemic.

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

In Germany, the September PMI (a monthly reading of private sector activity) fell to 47.2, a seven-month low.

Any reading below 50 indicates a contraction in business activity.

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

If confirmed by official figures, this would meet the technical definition of a recession.

Once the continent’s industrial powerhouse, Germany has been widely derided as the “sick man of Europe.” Much of its decline is due to the dwindling stature of its huge auto industry, which is grappling with the disruptive shift from gasoline and diesel vehicles to electric ones.

China also plays a major role, as its demand for German cars is deteriorating. At the same time, it sends cheap cars to Europe, which hurts German carmakers. Volkswagen, Europe’s largest carmaker, 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 slowdown in the manufacturing sector has deepened again, evaporating any hopes of an early recovery.

‘In a sign of resignation, companies have laid off staff at a rate not seen since the Covid-19 pandemic in 2020. A technical recession appears to be brewing.’